- Australia recorded its largest trade surplus on record in February.
- Iron ore exports soared, helping to offset a steep decline in coal exports. Imports of fuel also declined on the back of lower prices.
- Australia has now recorded a trade surplus in excess of $1.5 billion for nine consecutive months. This has largely been due to firmer commodity prices.
- Booming commodity prices has helped to boost government revenues, allowing the government to announce income tax cuts.
Australia’s trade surplus hit the highest level on record in February, surpassing the previous mark set in December 2016.
According to the Australian Bureau of Statistics (ABS), it surged to $4.8 billion after seasonal adjustments, coming in well ahead of the $3.7 billion level expected by economists.
January’s surplus — previously reported at $4.55 billion — was revised down slightly to show a smaller surplus of $4.35 billion.
During the month, exports rose by 0.2% to a record high of $39.83 billion in seasonally adjusted terms.
Non-rural goods exports — the largest category in dollar terms — rose by $127 million from a month earlier.
In February, exports of metal ores and minerals, predominantly iron ore, surged by $958 million, helping to offset a steep $760 million drop in the value of coal exports.
The surge in iron ore largely reflects higher prices following supply disruptions in Brazil stemming from a mining disaster in late January. The equally large drop in coal exports may reflect reports of delays in Australian shipments being processed at Chinese ports during the month.
The other of Australia’s big three commodity exports — LNG — increased by a smaller $97 million.
Outside of commodities, services exports also surged by $136 million from January, helping to offset declines of $142 million and $44 million respectively for exports of non-monetary gold and rural goods.
On the other side of the ledger, imports fell by 1.1% after seasonal adjustments to $35 billion, largely reflecting the impact of lower petrol prices which fell by $344 million.
Imports of intermediate and other merchandise and capital goods, along with non-monetary gold, fell by $443 million, $155 million and $22 million respectively January.
Those declines were partially offset by stronger imports of consumption goods and services which rose by $12 million and $235 million respectively.
The increase in consumption goods was largely driven by car imports which rose by $358 million, offsetting declines in all other categories.
Thanks largely to booming commodity prices, Australia has now recorded a trade surplus in excess of $1.5 billion in each of the past nine months, delivering a cash windfall for the government through higher tax receipts.
“The trade balance has strengthened from a $2.9 billion surplus on average in the December quarter to a $4.6 billion average in the March quarter. The bulk of this improvement likely reflects higher commodity prices,” said Andrew Hanlan, Senior Economist at Westpac Bank.
“The lift in prices is boosting Australia’s national income, which is flowing through to higher tax revenues, providing the government with additional fiscal flexibility as evident in the recent budget updates.”
And by fiscal flexibility, that partially means income tax cuts to workers. At a time when household income growth has been soft, and spending levels sluggish, the commodity price rally could’t have come at a better time for the economy.
“Australia is presently riding the wave of higher export volumes, buoyant commodity prices and an Aussie dollar content to sit in the low 70 cent region — it’s a tasty trifecta,” said Gareth Aird Senior Economist at the Commonwealth Bank.
“We think that this commodity story has further to run… so a further upside surprise to the Government’s coffers looks probably.”
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