NZ: Terms of trade heads further north with surge of 0.7% in Q3 2017 - BNZ

Doug Steel, Senior Economist at BNZ, notes that New Zealand’s terms of trade rose 0.7% in Q3 2017, to be 12.3% higher than a year ago and was a little softer than market (and BNZ) +1.3% expectations but not a big miss in the scheme of things.

Key Quotes

“The terms of trade movement was the result of export prices (-1.9%) falling by less than import prices (-2.6%) in the quarter. Both trade prices underwhelmed, but we think reversal is in store for Q4 as a lower NZD takes effect.”

“Regards volumes, exports rose 0.3% and imports fell 0.7% in the quarter. Exports were a little stronger than we expected, while imports were a little softer. The net balance offers a bit more support to Q3 GDP that we had figured. But we see this as offsetting some downside risk that was around our 0.7% forecast for Q3 GDP, rather than a reason to revise up.”

“In the bigger picture, as we have been forecasting for more than a year now, the merchandise terms of trade has reached a record level in 2017, surpassing the previous peak in 1973 and higher than the Korean Warinspired surge in the early 1950s when wool prices spiked. It’s important.”