It looks like trade won't deliver the same boost to Australian GDP as it did earlier in the year

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  • Australia’s trade surplus fell short of expectations in May, printing at $827 million compared to forecasts for an increase to $1.2 billion.
  • Exports grew by 0.4% during the month, faster than the 0.3% lift in imports.
  • Economists believe trade is unlikely to deliver the same tailwinds for GDP in the June quarter as it did earlier in the year.

Australia’s trade surplus expanded in May, if only because of a substantial downward revision to the prior month’s data.

According to the Australian Bureau of Statistics (ABS), a trade surplus of $827 million was reported in seasonally adjusted terms, higher than the downwardly-revised $472 million surplus reported in April.

The latter was originally reported at $977 million.

Despite the widening in the surplus in May, it still fell short of expectations for an increase to $1.2 billion.

Helping to explain the result, the ABS said that exports grew faster than imports during the month, lifting 4% and 3% respectively.

Indeed, both rose to the highest level on record.

After seasonal adjustments, the ABS said exports jumped to $35.562 billion, driven by strong growth in non-rural goods and non-monetary gold exports.

They increased by $938 million and $343 million respectively, accounting for the bulk of the $1.353 billion headline increase.

The substantial increase in non-rural exports — the largest category by dollar value — was driven by a solid lift in the value of Australia’s three main commodity exports, iron ore, coal and LNG.

Exports of metal ores and minerals, predominantly iron ore, increased by $322 million from April. LNG and coal also chimed in nicely, lifting by $325 million and $298 million respectively.

Services exports also improved, lifting by $75 million from a month earlier. Tourism exports — including in this category — rose by $65 million from April.

The movements in other categories, including rural exports, were negligible from a month earlier.

ABS

On the other side of the trade ledger, the ABS said imports rose to $34.735 billion in seasonally adjusted terms, up $998 million from a month earlier.

Imports of consumption goods, intermediate and other merchandise goods and non-monetary gold all rose strongly, lifting by $471 million, $459 million and $142 million respectively.

The strength in consumption imports was driven by an increase in textiles, clothing and footwear, as well as solid gains across all other categories.

As an indicator on household spending, this is encouraging.

The strength in intermediate and other merchandise goods imported largely reflected higher fuel prices and an increase in parts for transport equipment with imports of both lifting $139 million and $125 million respectively.

Services imports also rose by a modest $23 million from a month earlier.

Capital goods import bucked the trend, falling by $98 million. This was largely down to a drop in equipment imports from Australia’s armed forces.

Tom Kennedy, economist at JP Morgan, said that looking through the noise that is a feature of the report, Australia’s trade performance still looks good.

“The recovery in Australia’s external sector so far this year has broadly played out as expected, and owes mostly to the anticipated rise in LNG export volumes following the completion of the last of the major investment projects,” he says.

“Looking ahead, the bulk of these projects will hit production capacity in coming months, meaning the impulse from real exports to GDP will also fade.”

Kennedy suggests that despite the string of recent surpluses that have been recorded, trade is unlikely to deliver the same windfall to economic growth in the June quarter compared to what it did in the first three months this year.

“The revision-prone nature of the data makes it difficult to draw any definitive conclusion on the quarterly trajectory until all the monthly data is at hand, though on current tracking it appears Australia’s traded sector is moderating from the stellar performance in Q1,” he says.

David de Garis, economist at the National Australia Bank, agrees that the trade tailwinds are unlikely to be as strong in the June quarter.

“Australia is still notching up trade surpluses this quarter, though at a lower level and thus potentially less growth supportive than evident in Q1,” he says.

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