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ASB’s Latest Trade Disruption Report: Low Export Demand And High Import Prices Look Set To Continue



After a strong initial recovery from the effects of
COVID-19 in 2021, New Zealand is likely to feel the impact
of slowing global trade well into 2023, according to ASB’s
latest Trade Disruption economic report.

The report
looks at the impact of international and domestic forces on
supply chain and global trade, and forecasts what lies ahead
for businesses and consumers for the remainder of 2022 and
beyond.

ASB International Trade Consultant Paul Gestro
says, “Six months ago, shipping and manufacturing
interruptions, paired with growing consumer demand, created
the perfect storm for major supply chain disruption. Now
factors such as rising inflation, labour shortages and
Russia’s invasion of Ukraine are adding to the COVID
melting pot, crippling global supply chain
growth.

“Global forecasts have been downgraded, and
with New Zealand’s economy susceptible to international
frictions, we can expect to see reduced demand for our
exports coupled with shrinking demand for imported goods and
lessened availability.”

Consumer price inflation is
currently tracking at an annual rate of 7.3%, the highest in
more than 30-years. Much of this rise is due to higher costs
for imported consumer goods, having risen by 15% since late
2019 and this is expected to rise further.

Higher
import prices are hitting businesses as well as consumers.
Prices for imported intermediates (oil and other raw
materials) are up close to 25% on pre-COVID levels and
prices for imported capital goods, which have moved
considerably to date, look likely to climb given the rising
cost environment.

Export demand taking a
hit

Businesses and consumers here and
internationally, are facing increasing costs at a time when
global growth is slowing. In 2021, the country’s key
trading partners recorded 6.1% growth and this figure is
expected to slow to just 3.5% in 2022 and 3.4% in
2023.

As the rising cost of living continues to bite
consumers in New Zealand’s key export markets such as the
United States, Europe and the United Kingdom, demand for the
country’s high-end commodities has taken a hit.

New
Zealand’s wine and seafood exports are suffering the most
with some export volumes down almost a third on pre-COVID
levels.

Meat and dairy exports remain the country’s
strongest players although exports for both are down on
previous years. Prices are holding for meat and dairy, but
labour constraints and bad weather have impacted export
volumes. For the year ending June, whole milk powder exports
are down 23% on last year and beef exports are behind around
3-8%.

Despite global forestry supply being hampered by
the absence of Russian logs, New Zealand logging producers
are facing turbulent times. Around 87% of the country’s
forestry exports are sent to China where a cooling property
market is curtailing demand.

Mr Gestro says, “At a
national level, exporters are being plagued by rising input
costs and widespread labour shortages which are being
exacerbated by the Omicron outbreak and constraining
outputs, therefore it’s unlikely export volumes will make
a return to their 2020 peak until 2024.

“These
dynamics are being felt more so by smaller exporters, like
seafood and wine producers as they have less established
trade networks and are less readily able to increase prices
compared to larger commercial exporters.”

Import
demand plunges as Kiwis cut discretionary
spending

With New Zealanders tightening their belts
as the cost of living soars, demand for imported goods is
set to slow as Kiwis reduce discretionary
spending.

ASB Senior Economist Mark Smith says, “The
early onset of the pandemic significantly changed spending
patterns. With the borders closed and COVID restrictions set
in, Kiwis while stuck at home splurged on imported consumer
durables, including new cars. This spending is now tailing
off as high inflation crimps household
budgets.

“Higher costs, slowing demand and elevated
uncertainty is impacting the business sector, with firms
signaling they intend to cut back on investment, including
imported capital equipment. This will weigh on economic
activity this year and the cutbacks will not help in
addressing widespread capacity constraints within the
economy.”

Shipping disruptions continue to cause
headaches

Shipping costs remain at historic highs but
are beginning to cool somewhat, potentially bringing some
reprieve.

With some main ports congested and facing
skilled labour shortages, reliability continues to be one of
the biggest issues impacting businesses, having worsened
since the height of the pandemic in 2021.

Mr Smith
says, “Being unable to rely on timely deliveries of stock
is putting a strain on business cash flow as it becomes
harder to stagger supplies.

“Despite falls of late,
it is unlikely shipping costs will drop to pre-COVID levels.
Smaller businesses could be more impacted as they’re less
likely to have well established trade relationships and are
more sensitive to geographical exposure.”

About the
report:

ASB’s Trade Disruption report provides New
Zealand businesses with critical insights into import and
export markets with a focus on supply chains, allowing
operators to make informed decisions and reduce
risk.

The ASB Trade Disruptions report is available
online at: https://www.asb.co.nz/content/dam/asb/documents/reports/economic-note/ASB%20Trade%20Disruptions%20Report%20Aug%202022.pdf

Other
recent ASB reports covering a range of commentary can be
accessed at our ASB Economic Insights page: https://www.asb.co.nz/documents/economic-insights.html

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