World Economy

Global Dairy Price Collapse Affecting NZ Growth

Global Dairy Price Collapse Affecting NZ Growth
Global Dairy Price Collapse Affecting NZ Growth

The downturn in the global dairy market is slowing growth in the New Zealand economy, and eroding business and consumer confidence, an independent economic think-tank warned Wednesday.

The effects of reduced farm income would reverberate through the economy as farmers reined in spending to ride out the poor seasons, according to the Quarterly Predictions report from the New Zealand Institute of Economic Research, Xinhua reported.

Exports of dairy products have been hammered in the past year as world prices have plunged about 50% in six months in the face of falling demand, especially from China. However, in the latest Global Dairy Trade auction last week, prices rebounded almost 15%, after ten falls in a row.

“We expect annual average GDP growth to dip to close to 2% by the end of this year, before rebounding over 2016 as the boost from the lower New Zealand dollar filters through to a broad range of exporting sectors,” said an NZIER statement.

The outlook for many other sectors was positive and the economy was receiving a boost from continued strong net migration, said the statement.

Construction remained solid and was expected to remain a key support of economic activity through the next five years.

The NZIER forecast the Reserve Bank of New Zealand would make two further cuts to interest rates by the end of the year as it struggled to bring inflation back to the midpoint of its 1% to 3% target range.

“Inflation in the New Zealand economy remains very soft, reflecting low global inflation and the earlier effects of the high New Zealand dollar,” it said.

The RBNZ has cut the official cash rate twice this year each time by 25 basis points taking it down to 3%.

  Trade Deficit

New Zealand ran a worse than expected trade deficit of $649 million in July, almost twice as big as usual, though exports of fruit and beef were well up on a year ago, reported.

Exports worth $4.2 billion in July were outweighed by imports of $4.8 billion, but there were signs of some improvement in exports to the key market of China, after the big slump in the past couple of years.

Seasonally adjusted, the value of total exports jumped 8% between June and July this year, a lift of $317m, more than reversing a near 6% loss between May and June.

Seasonally adjusted exports to China rose between June and July, up almost 10% to $854m. However the trend for goods exports to China is 26% down on the peak seen at the end of 2013.

Between June and July there was a seasonally adjusted 19% gain in milk powder, butter and cheese exports.  But that was roughly accounted for by a 20% lift in volumes between June and July.

Annual exports to China have collapsed by more than 27% to $8.3 billion, though it remains New Zealand’s second largest export market after Australia.