Economic Week - June 5

by Nick Clark

Dairy pushes Ag Debt down

The Reserve Bank’s monthly Sector Credit Statistics showed agricultural debt was worth $62.8 billion in April 2020, down $95 million for the month and down $131 million (or 0.3%) compared to April 2019.  The drops were mainly due to the ongoing squeeze on dairy lending.

Looking at the sectors within agriculture, lending to dairy cattle farming was down $113 million for the month (and down $1.4 billion for the year) and horticulture was down $4 million for the month (but up $546 million for the year). Lending to sheep, beef cattle, and grains farming was up $21 million for the month (and up $625 million for the year), while other agriculture was up $2 million for the month (and up $83 million for the year).

Agriculture’s 0.3% annual decrease in lending compares to annual increases for housing (up 6.4%) and businesses (up 6.0%), and a steep 11.9% decrease for personal consumer lending.

The Farm Debt Mediation Scheme becomes operational on 1 July 2020.  For information about the scheme and how it will work see here.


Dairy prices stable

A stronger price for whole milk powder helped nudge the Global Dairy Trade slightly higher at this week’s auction.

Overall, the GDT was up 0.1%.  Whole milk powder, comprising over half the product volume sold over the preceding 12 months, rose 2.1%.  Most of the other commodities fell, with falls for skim milk powder (down 0.5%), anhydrous milk fat (down 2.9%), butter (down 4.4%), cheddar (down 5.3%), and lactose (down 4.1%).  Butter milk powder jumped 9.4% though.

The average selling price overall was $US2,902 and 21,968 tonnes were sold.

The GDT has been stable over the past few auctions, but it is still down 12.9% compared to the same time last year.


Commodity prices holding

World prices of New Zealand’s key commodities slipped 0.1% in May, according to the ANZ Commodity Price Index.

Dairy prices were down 5.1% for the month, but there were gains for meat and fibre (up 3.2%) and forestry (up 7.4%), while horticulture prices were unchanged.  Although up overall, meat prices were mixed with beef prices enjoying a strong lift but lamb prices weakening.

In local currency terms the NZ Dollar index fell 1.3% in May as our exchange rate firmed against the currencies of most of our trading partners.

Compared to May 2019, the World Price Index is down 9.3% while the NZD Index is down 2.6%.  Despite these drops, ANZ observed that commodity prices have held up ‘extremely well’ in the wake of global market volatility.  However, it expects prices to ease in the months ahead.


Terms of trade slips

Goods export prices dropped slightly in the March 2020 while goods import prices rose slightly, according to Statistics NZ’s Overseas Trade Indexes.

Export prices for goods fell 0.2% in the quarter, with drops for meat, forestry, and seafood outweighing an increase for dairy products.  Import prices rose 0.5% and this resulted in the merchandise (goods) terms of trade falling 0.7%.

While a drop in the terms of trade tends to be negative for the economy, it is still at historically very high levels.  Also, while both export and import prices will have fallen during the current June quarter, the downward pressure will have been stronger for imports (especially oil).

Turning to volumes, export volumes for goods rose 1.8% and import volumes fell 3.9%.  The combination of prices and volumes meant goods export values rose 3.6% and import values fell 1.9%.

Meanwhile, the services terms of trade rose 3.6% in the March quarter, with services export prices up 1.3%, while import prices fell 2.2%.  Services trade will have been decimated in the current June quarter and its medium-term outlook will be weak.


Dairy overtakes travel in export stakes

Dairy exports have overtaken travel services exports in the year to March 2020, according to Statistics NZ’s quarterly Goods and Services Trade by Country.

For the year to March 2020 exports of dairy products were worth $16.2 billion (up $1.4 billion compared to the year to March 2019), while travel services exports were worth $15.9 billion (up $111 million).  This is the first year in five that dairy exports have exceeded travel services exports.

Meat exports were also up for the year, rising by $669 million to $8.3 billion, but forestry exports were down $702 million to $4.7 billion.

New Zealand’s total goods and services exports were worth $86.4 billion for the year to March, while imports were worth $82.9 billion. 

These statistics show only the early impact of COVID-19.  The June 2020 quarter will be a lot worse for travel services exports.


Council rates and spending up pre-COVID

Rates income was $6.5 billion for the year to March 2020, up 6.2% on the year to March 2019, according to Statistics NZ’s quarterly Local Authority Statistics.

Non-rates income was up 4.0% to $4.7 billion and total operating income was up 5.3% to $11.1 billion.  Operating spending rose strongly, up 6.5% to $11.6 billion, leaving an annual operating deficit of $468 million, up from the previous March-year’s deficit of $315 million. Councils’ reliance on rates rose from 57.7% to 58.2% of total operating income. 

The impact of COVID-19 will not be shown in these statistics until the June quarter data is out in three months.  It will have had a big impact on council income, especially non-rates income, and councils’ reliance on rates will have risen.  Although spending might also have been reined in, a larger operating deficit is a near certainty.  


Building consents down

In April 2020, the seasonally adjusted number of new dwellings consented fell 6.5%, according to Statistics NZ’s monthly Building Consents Issued statistics.  This followed a 22% fall in March.

For the year ended April 2020, the actual number of new dwellings consented was 37,180, up 8.1% from the April 2019 year – although March and April’s falls have seen the annual increase weaken.

The annual value of non-residential building work consented was $6.6 billion, down 13.0% from the April 2019 year. $264 million of farm buildings were consented, down 17.0% for the year.


NIWA Soil Moisture Data

NIWA’s latest year (as at 9am Thursday 4 June) show that despite welcome rain in many areas, including drought-affected areas, soil conditions continue to be significantly dryer than usual across large parts of the country.

Exchange Rates

The NZ Dollar strengthened this week both against the TWI and against all our major trading partners, except the Australian Dollar.  The weekly gains were particularly strong against the Japanese Yen, the US Dollar, and the Chinese Renminbi – all up by more than 3%.



NZ Dollar versus

This Week


Last Week (28/5/20)

Last Month (4/5/20)

Last Year (4/6/19)

US Dollar





Australian Dollar










UK Pound





Japanese Yen





Chinese Renminbi





Trade Weighted Index





Source: Reserve Bank of NZ


Wholesale Interest Rates

Over the course of the week the 90 Day Bank Bill interest rate was unchanged at 0.26% but the rate for 10 Year Government Bonds jumped 22 basis points to 0.94%. The OCR is scheduled to next be reviewed on 24 June.



This Week


Last Week (28/5/20)

Last Month (4/5/20)

Last Year (4/6/19)






90 Day Bank Bill





10 Year Government Bond





Source: Reserve Bank of NZ