Economic Weekly: A celebration and a warning

In our last Economic Weekly, we noted the peculiar truth that the New Zealand economy is hotting up, despite the multibillion-dollar hole left by the absence of most of the tourism sector. In part, that’s because while it’s been a grim eighteen months for our service exports, NZ’s goods exports are enjoying a golden run.

We were given a reminder of this last Friday, with Stats NZ’s release of the monthly merchandise trade for May. The big headline was the circa 31% year-on-year recovery in imports (a function of their massive crash during lockdown this time last year) hidden in the trend was the news monthly goods exports hit their highest level ever at a cool $5.9 billion.

The achievement caps a remarkable eighteen months for the sector, with export values surprising forecasters with their resilience through the pandemic. It’s a microcosm of the broader strength of international goods trade through the pandemic, which wrongfooted expectations for a collapse in activity amid COVID’s unprecedented demand and supply shocks (see The Economist’s piece last year likening this to the scene in Kill Bill where Uma Thurman’s character punches her way out of a coffin).

Now, as the global economy emerges from the worst of the pandemic, the outlook for the export continues to improve. Surging commodity prices are the big driver – as consumption has recovered overseas, global supply has struggled to keep up with demand, boosting prices for dairy, meat and forestry products by between 10 and 30% each since the beginning of the year (to continue the Tarantino metaphor, the impact on export revenue is akin to the adrenaline shot administered by John Travolta in Pulp Fiction). Despite all the headlines about shipping bottlenecks and widespread logistics disruption, NZ export volumes are also holding up well, as we noted a couple of weeks ago.

Having survived the challenges of COVID thus far, battling protectionism and global geopolitics are the next big challenges for the export sector. Last week saw mixed signals on that front. On the one hand, the US and EU moved to resolve the world’s longest running trade dispute. On the other hand – closer to home –Aussie-China trade tensions have escalated further, with a new anti-dumping complaint raised before the WTO.

We are hopeful that global policymakers will remain mindful of the win-win gains to be had from trade, and the world can avoid a protracted surge in protectionism. Still, the export sector may need to continue employing some of that same resilience it’s shown through the pandemic – leveraging strong relationships offshore and diversifying into new markets as much as possible.