...Australia and New Zealand: A Tale of Two Terms-of-Trade Shocks The dairy price shock that has hit the New Zealand economy since 2014 is reminiscent of the Australian experience of declining commodity export prices since 2011, which contributed to an almost 30% fall in terms of trade (Figure 1). Although Fitch Ratings assumes dairy prices will start to slowly recover later in the year, the performance of the Australian economy since 2011 could shed light on the downside risks for New Zealand from a prolonged period of low dairy prices. Australia's GDP growth has remained robust since 2011, although analysts revised down their growth estimates over the period (Figures 2 and 3). Strong mining investment and the subsequent increase in iron ore production supported growth. Australian iron ore producers managed to stay profitable after making cost adjustments, limiting the need to adjust production. In New Zealand, around a quarter of dairy farms are currently operating with negative cash flow....
