Australia's trade surplus comes up short

Ken Murray / NY Daily News Archive via Getty Images
  • Australia’s trade surplus narrowed unexpectedly in October as imports rose faster than exports.
  • Coal and LNG exports soared while iron ore fell modestly. The drought is now clearly impacting exports of rural goods.
  • The increase in imports reflected higher fuel prices and stronger demand for capital goods.

Australia’s trade surplus narrowed unexpectedly in October, driven by a sharp lift in the value of imports.

According to the Australian Bureau of Statistics (ABS), the trade surplus fell to $2.316 billion after seasonal adjustments, undershooting market expectations for a larger surplus of $3 billion.

September’s surplus, originally reported at $3.017 billion, was revised down to show a figure of $2.94 billion.

Over the month, the value of exports rose by 1% in seasonally adjusted terms to a record-high of $38.05 billion.

Non-rural goods exports, the largest category by dollar value, surged by $1.02 billion from a month earlier, driven by large increases for coal and LNG.

They rose by $677 million and $207 million respectively, masking a $44 million drop in the value of exports of metal ores and minerals, namely iron ore.

Services exports also grew by $93 million, partially helping to offset declines in the value of non-monetary gold and rural good exports which fell by $355 million and $277 million respectively.

The decline in the latter suggests the impact of Australia’s drought is now impacting trade flows. The ABS said the value of exports in all subcategories under rural goods fell from a month earlier.

“We expect further weakness in rural exports ahead,” said Kristina Clifton, Senior Economist at the Commonwealth Bank.

“The official wheat production forecast for 2018/19 was recently cut by 11%, with production expected to be at its lowest level in a decade.”

ABS

On the other side of the trade ledger, imports rose by a larger 3% to $35.73 billion, helping to explain the narrowing in the headline trade surplus.

Intermediate and other merchandise goods led the increase, jumping by $582 million from September. $390 million of that came entirely from fuel, a surge that’s likely to be reversed in the months ahead given the steep plunge in crude oil prices that began in early October.

Imports of capital goods and consumption goods also rose by $481 million and $105 million respectively, more than offsetting declines in the value of non-monetary gold and services imports of $26 million and $25 million respectively.

The lift in capitals goods imports mirrors the increase in non-mining investment intentions in Australia’s CAPEX report last week.

“Looking further ahead we expect the run of trade surpluses to continues next year,” Clifton said. “Export volumes should lift a little further with a modest rise in iron ore capacity and the continuing ramp up in LNG production.”

“With China being the destination for around one third of our exports, the health of the Chinese economy is especially important for Australia.

“On that front we are optimistic because while the Chinese economy is slowing, recent policy measures are supporting the economy and mean that we growth shouldn’t slow by very much.”

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