Posted by Blogger Name. Category:
Exporting
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Homepaddock
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LabourGreenNZFirstMana
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Manufactured crisis
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New Zealand dollar
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Reserve Bank
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Stats NZ
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Terms of trade
Remember the manufactured manufacturing crisis? And remember the similarly manufactured crisis in exporting?
Fortunately, we shouldn't be too quick to believe what Labour, the Greens, Winston First and Mana tell us. Exporting is booming, and our terms of trade are almost at record levels; Statistics NZ reports:
In the March 2014 quarter, the merchandise terms of trade rose 1.8 percent, Statistics New Zealand said today. The latest increase was due to export prices rising and import prices falling.
Terms of trade is a measure of the purchasing power of New Zealand’s exports abroad. An increase means New Zealand can buy more imports for the same amount of exports.
“Five consecutive quarterly rises have lifted the terms of trade to its highest level since the September 1973 quarter,” prices manager Chris Pike said. The terms of trade is now 1.7 percent below its all-time high in the June 1973 quarter.
In the March 2014 quarter, the price of exported goods rose 0.8 percent, and seasonally adjusted export volumes rose 1.6 percent. The trend for export volumes has reached a new high, and is 4.2 percent higher than the previous high point in the December 2012 quarter.
Dairy prices (up 2.3 percent) were the top contributor to total export prices. Seasonally adjusted dairy volumes fell 4.3 percent, following a 24 percent rise in the previous quarter.
Meat prices rose 2.1 percent and meat volumes rose 6.6 percent, leading the rise in export values. The trend for meat volumes has reached a new high – it is now 5.3 percent higher than the previous high point in the September 2006 quarter.
Prices for imported goods fell 1.0 percent in the March 2014 quarter, following a 2.7 percent fall in the previous quarter. Petroleum and petroleum products (down 3.5 percent) contributed the most to the overall decrease in import prices due to lower prices for crude oil.
Import volumes rose 2.3 percent, following a flat December 2013 quarter. The trend for import volumes has been rising for six consecutive quarters – by a total of 14 percent.
This is indeed great news for the economy. Despite the fact that we are importing more, a sign of growing consumer confidence, the value and volume of products being exported continues to rise. That can be seen in this graph, which is all upwards after a flat period in 2009, in the midst of the Global Financial Crisis:
We're by no means experts in this field, but Ele from Homepaddock (and her farmer) are right at the heart of things, operating a large dairy farming operation. Ele shares her thoughts:
The opposition and many commentators keep saying the value of our dollar is too high.
That isn’t all bad and the near-record terms of trade is one of the positives from that.
Our purchasing power is higher, exports are still doing well – in spite of the value of the dollar – and imports are costing less.
The opposition want our dollar to be worth less.
That would immediately reduce the value of every dollar everyone earns in New Zealand, reducing the purchasing power of all of us.
Ele's comments on the opposition are interesting. Labour is promising to "tweak" the Reserve Bank, limiting the Bank's independence, and leaving it at the mercy of future governments. That prospect does not fill us with confidence.
And any moves to artificially deflate the level of the New Zealand dollar will have widespread consequences. Imported goods would automatically leap in price, led by petrol and oil prices. A spike in fuel prices would be inflationary, and would hit lower-paid New Zealanders the hardest given that it would be unlikely to be matched by an immediate rise in incomes.
Yes; the value of the New Zealand dollar is high. But we are a very small fish in a very large global economy, and the high dollar is as much a comment on the continued weakness of the US economy as it is on the strength of our economy. Allowing the Reserve Bank to become a political play-thing is a recipe for economic disaster.
