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Australia's trade surplus narrowed sharply in October

Source: Star Wars/Lucas Films

Australia’s trade surplus narrowed sharply in October, driven down by lower exports and higher imports.

According to the Australian Bureau of Statistics (ABS), the trade surplus fell to just $105 million in seasonally adjusted terms, well below the $1.4 billion level expected by economists.

It was also significantly down on the $1.6 billion surplus recorded in September, falling to the lowest level since April this year.

Helping to explain the sharp narrowing, far larger than any economist expected, the ABS said exports fell while imports rose during the month.

In seasonally adjusted terms, exports fell by 3% to $31.871 billion, the lowest total since April.

Non-rural goods exports fell by 5% to $18.62 billion, rural goods by 2% to $4.02 billion while services slid 2% to $7.309 billion.

Within the non-rural goods component — the largest by dollar value — exports of metal ores and minerals (iron ore), metals, and coal, coke and briquettes fell by $793 million, $146 million and $121 million respectively.

“The slump… is due to the reduction in demand for iron ore and coal exports linked to the pollution crackdown in China,” said Paul Dales, Chief Australia and New Zealand Economist at Capital Economics.

Exports of other mineral fuels, largely LNG, were steady.

Providing some offset to the decline in non-rural and rural goods, the value of non-monetary gold exports — a volatile component in this data series — surged by 24% to $1.862 billion.

This table from the ABS has all the granular details comparing October’s figures to those seen in the previous two months.

Source: ABS

On the other side of the ledger, imports rose by 2% to $31.766 billion in seasonally adjusted terms.

Imports of consumption goods lifted 2% to $8.355 billion while imports of intermediate and other merchandise goods rose by 4% to $9.59 billion. Services imports increased 2% to $7.387 billion helping to offset a 2% drop in capital goods which fell to $6.034 billion.

“A lot of the rise in import values was due to a 12% surge in petrol imports, presumably driven by the higher oil price,” said Dales.

Looking ahead, Dales says there’s now a real chance that Australia may record trade deficits in the near-term. However, if that does eventuate, he doesn’t expect it will last.

“It’s possible that the total trade surplus will turn into a deficit in the coming months, at least for a short while,” he says.

“Goods exports should receive some boost from the recent rise in the iron ore price, although the volume of exports will be restrained until China’s pollution controls are relaxed in Q1 or Q2 next year.

“While it is early days yet, after making a neutral contribution to GDP growth in the third quarter, net exports may be a small drag on GDP growth in the fourth quarter.”

The large data miss has weighed on the AUD/USD which is trading down 0.26% at .7543, the lowest level since November 21.

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