Higher dairy and meat prices for the quarter to March were the foundation of a 37-year high for the quarter to March result.
As with separate economic data and surveys released earlier this week, commodities appear to be the mainstay indicating the beginning of an economic revival.
The country's monthly goods trade surplus hit a record high for April, producing a $1.1 billion trade surplus which was $500 million above expectations; but that was offset to some extent by the strength of the New Zealand dollar against its US counterpart reaching a 26-year post-float high of US82.6c yesterday.
As with positive business surveys released this week, the relative good news of strong commodity prices for the economy are undermined by cautionary reminders of the fragility of the wider global economy in sovereign debt in Europe and US, oil supplies and geopolitical action.
The terms of trade, which measure the value of a country's exports compared with its imports, showed there were 0.9% more imported goods which could be funded by a fixed quantity of exported goods.
ASB economist Jane Turner said the terms of trade had increased strongly during the past year, largely on the back of stronger commodity export prices.
"This represents an income gain for New Zealand. However, increased export incomes, particularly in dairy and meat, have been mostly used to pay down debt," she said, as opposed to circulating wider in the economy.
With growth in imports outstripping exports during the quarter, net trade would be a drag on economic activity over the quarter, she said.
That would add to the lost economic activity as a result of disruption following the February earthquake, and bolster our view that the gross domestic product probably contracted during the quarter.
Farmers paying debt had reduced a "key economic vulnerability" and left the country with a stronger financial perspective in the future, but debt repayment had "muted the stimulatory impact of higher terms of trade on the New Zealand domestic economy", Ms Turner said.
She said global commodity prices had "surged" during the first quarter, with stronger prices for dairy and meat underpinned by higher grain prices, because of large crop losses elsewhere.
Oil prices had increased because of political turmoil in the Middle East and North Africa, which raised the perceived risks that oil supplies get disrupted.
She said it was typical that when New Zealand export commodity prices increased, the kiwi also strengthened, providing a natural buffer to export returns.
However, during the first quarter, the kiwi was weighed down by the February earthquake and the 50 basis point cut by the Reserve Bank to the interest-driving official cash rate.
Commodity increases
Quarter on quarter: Export prices up 6.3%, import prices up 5.4%
Year on year: Export prices up 10.9%, import prices up 3.8%
Dairy prices: Up 5.5%
Meat prices: Up 10%
Petroleum product prices: Up 18.6%
Aluminium: Up 4.6%.
