Australia just posted its largest trade surplus on record

YASSER AL-ZAYYAT / AFP / Getty Images

Australia’s trade surplus soared to a record high in December.

According to the Australian Bureau of Statistics (ABS), the surplus swelled to $3.511 billion in seasonally adjusted terms, smashing market expectations for an increase to $2.2 billion.

It easily breezed past the previous record high of $2.236 billion set in February 2009.

November’s surplus, originally reported at $1.243 billion, was also revised up to $2.04 billion.

The ABS said that the value of exports jumped by 5% to $32.63 billion, also a record high, assisted by an enormous surge in the value of non-rural exports over the month.

They alone surged by $1.249 billion, or 6% in December, thanks to surging bulk commodity prices and a lift in export volumes.

Exports of metal ores and minerals, largely iron ore, surged by 10%, or $682 million, to $7.738 billion. It was a familiar story for exports of coal, coke and briquettes which jumped by 14%, or $705 million, to $5.869 billion.

Crucially in terms of Australian real GDP, not only did prices surge during the month, so too did export volumes.

The ABS said that iron ore prices increased by 4% to 7% while volumes jumped by between 12% to 19% in original terms. The gains for coal were even greater with prices rising by between 2% to 27% while volumes lifted by 15% to 21%.

Simply enormous, and something that suggests Australia’s shock GDP contraction of the September quarter is unlikely to be repeated in Q4.

Thank you very much, China!

Elsewhere, exports of rural goods increased by $104 million while those for non-monetary gold jumped by $319 million.

Services exports increased by $6 million over the month.

On the other side of the ledger, the value of imports increased by a smaller 1% to $29.12 billion.

The ABS said imports of consumption goods rose by $157 million while those for intermediate and other merchandise goods rose by $132 million. Services imports also increased by $42 million, helping to offset a decline in the value of capital goods which fell by $125 million.

This table breaks down the trade performance seen in December, and comes courtesy of the ABS.

Tapas Strickland, an economist at the National Australia Bank, said that mammoth trade surplus reflects a positive story of higher commodity prices and rising export volumes, which should support economic activity in 2017.

“This bumper trade balance should see net exports add to Q4 GDP growth,” he says.

“Preliminary calculations suggest net exports could add between 0.2-0.4% points to quarterly growth assuming the terms of trade rose 9.4%. This contribution and an expected bounce back from the weather-affected Q3 figure suggests a Q4 GDP outcome in the order of 1% q/q or higher.

“That should eliminate any fears out there that Australia was at risk of recording a ‘technical recession’ after the weak Q3 GDP figures,” he said.

Not only does he think that the surplus will assist the Australian economy, Strickland says it could also help to salvage Australia’s AAA credit rating.

“The trade balance may also make a credit rating downgrade by S&P less likely,” he says. “It’s worth noting S&P’s comment at the time of the July move to a negative outlook were ‘a sharp narrowing of current account deficits and external debt due to favourable export performance could also cause us to change the outlook to stable, although this appears unlikely over the next two years’.”

“At this stage, sizeable trade surpluses are likely to last for at least the next six months,” he said.

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