'Unequivocally weak': Australia recorded a massive trade surplus in December, but not for good reasons

  • Australia recorded its second-largest trade surplus on record in December.
  • Imports slumped by over $2 billion, the largest one-month fall on record. Exports also fell thanks to a sharp decline in the value of gold shipments.
  • Australia’s trade surplus swelled over both the December quarter and from a year earlier. However, most economists expect trade will detract from Australian Q4 GDP.
  • JPMorgan economists described the details of the December report as unequivocally weak.

Australia recorded another monster trade surplus in December thanks to a large fall in the value of imports.

According to the Australian Bureau of Statistics (ABS), the trade surplus swelled to $3.681 billion after seasonal adjustments, coming in well ahead of the $2.225 billion surplus expected.

November’s surplus, originally reported at $1.925 billion, was revised up to show a larger figure of $2.256 billion. The ABS also made significant upward revisions to surpluses reported earlier in the year.

As seen in the chart below, the December surplus was the second-largest on record.

A steep fall in the value of imports was the main factor behind the higher surplus in December.

The ABS said imports fell by 5.7% to $34.244 billion in seasonally adjusted terms, the largest decline on record.

The value of capital, intermediate and other merchandise and consumption goods all fell heavily, declining by $1.07 billion, $717 million and $653 million respectively from November.

Imports of civil aircraft, non-industrial transport equipment (cars) and fuel recorded the largest declines during the month, falling by $509 million, $653 million and $288 million respectively.

Those declines were partially offset by an increase in services and non-monetary gold imports that rose by $222 million and $161 million respectively from a month earlier.

ABS

On the other side of the trade ledger, the value of exports also fell, declining by 1.6% to $37.924 billion.

Exports of rural and non-rural goods rose by $353 million and $33 million respectively. Services exports also chimed in, lifting by $16 million from a month earlier.

The increase in the rural category large reflected a large $291 million increase in the value of cereal grains.

For the non-rural category — the largest component in dollar terms — the value of iron ore, coal and LNG exports all fell, masked by increases of $419 million and $138 million for metals and transport equipment.

Tourism-related services exports were near-unchanged at $5.507 billion for the month.

Helping to explain the headline decline in the value of exports, non-monetary gold shipments slumped by $1.034 billion from November. Excluding non-monetary gold, exports rose by 1.3% during the month.

Over 2018, Australia recorded a trade surplus with the rest of the world of $22.2 billion in original terms, a sharp increase on the $9.5 billion surplus recorded in 2017.

Thanks primarily to higher commodity prices and a ramping up of LNG production, the value of exports rose by $51.1 billion from 2017, larger than the $38.4 billion lift in the value of imports.

Nearer-term, Australia’s trade surplus swelled to $8.5 billion during the December quarter, larger than the $5.8 billion surplus seen three months earlier.

However, the increase largely reflects price movements, rather than changes in volumes, meaning trade is unlikely to contribute to GDP growth in the December quarter.

“Real net exports were most likely broadly neutral in the period, consistent with our original expectations,” said Andrew Hanlan, Senior Economist at Westpac Bank.

“The $2.7bn improvement in the [quarterly trade balance] is, in our view, likely driven the higher terms of trade in the period. On our initial calculations, the terms of trade rose by around 2.5% in Q4, up on higher export prices.”

Economists at both the Commonwealth Bank, JPMorgan and Capital Economics are even more pessimistic that Westpac, forecasting that net trade will likely drag slightly on GDP growth during the December quarter.

“The details of the report were unequivocally weak, particularly import,” said Tom Kennedy, Economist at JPMorgan.

“Net trade is now expected to be a modest drag on Q4 real GDP and we assign downside risk to our GDP tracking estimate of 0.7%.”

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