Te Whanganui-a-Tara – The global trade outlook is weakening as inflation, labour shortages and the Ukraine conflict compound covid woes, a new bank report says
After a strong initial recovery from the effects of covid 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.
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, the report says.
Consumer price inflation is currently tracking at an annual rate of 7.3 percent, the highest in more than 30-years. Much of this rise is due to higher costs for imported consumer goods, having risen by 15 percent 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 percent 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.
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 percent growth and this figure is expected to slow to just 3.5 percent in 2022 and 3.4 percent 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 percent on last year and beef exports are behind around 3-8 percent.
Despite global forestry supply being hampered by the absence of Russian logs, New Zealand logging producers are facing turbulent times. Around 87 percent of the country’s forestry exports are sent to China where a cooling property market is curtailing demand.
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.
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.
Shipping costs remain at historic highs but are beginning to cool, potentially bringing some reprieve.