Australia's monster trade surplus looks like good news for GDP

Clive Mason/Getty ImagesDaniel Ricciardo of Australia celebrates on the podium during the Formula One Grand Prix of China.
  • Australia recorded another monster trade surplus in March, the third straight in excess of $1 billion.
  • Exports hit a record high of $34.84 billion.
  • Economists believe it could add around 0.5 percentage points to Q1 GDP.

Australia recorded another monster trade surplus in March.

According to the Australian Bureau of Statistics (ABS), the surplus swelled to $1.527 billion in seasonally adjusted terms, easily topping expectations for a smaller figure of $950 million.

It was the largest surplus since May 2017.

February’s surplus, originally reported at $825 million, was also revised higher to $1.349 billion.

Australia has now recorded a surplus of $1 billion or more in each of the past three months.

The ABS said exports and imports both rose over the month.

Exports increased by 1% to a record $34.84 billion in seasonally adjusted terms, driven by solid improvements across all major categories.

Exports of non-rural goods, non-monetary gold and rural goods rose by $191 million, $131 million and $126 million respectively.

The increase in non-rural goods was driven by a large $226 million increase in the value of cereal grains exports.

For rural goods, the largest category by dollar value, LNG exports jumped by $58 billion while those for machinery and other manufactured goods rose by $68 million and $97 million respectively.

Exports of iron ore and coal, Australia’s largest by dollar value, were mixed — the former rising by $14 million while the latter dipped by $29 million.

Services exports also increased by $41 million, largely reflecting a $40 million increase in tourism.

Source: ABS

On the other side of the ledger, imports rose by 1% to $33.314 billion, driven by strong growth in intermediate and other merchandise goods and in non-monetary gold.

They increased by $381 million and $232 million respectively, offsetting declines of $198 million, $61 million and $41 million respectively for imports of consumption goods, capital goods and services.

The increase in intermediate and other merchandise goods was entirely driven by a $416 million surge in fuel imports, reflecting higher crude oil prices in recent months.

The drop in consumption goods — an indicator on household demand — was driven by weakness in all categories aside from textiles, clothing and footwear.

Not only did the March trade report exceed expectations, Paul Dales, Chief Australia and New Zealand Economist at Capital Economics, says it means Australia will probably be one of the few major economies where GDP growth strengthened in the March quarter this year.

“After taking account of price effects, real imports — measured in volumes — may have fallen by 0.5% in Q1, with real exports perhaps rising by 2.5% over the same period,” he says.

“After subtracting 0.5 percentage points (ppts) from real GDP in Q4, net exports may have added about 0.5 ppts in Q1.”

Dales says it now seems possible that after expanding 0.4ppts in the December quarter last year, real GDP may have grown around 1% in the March quarter.

Australia will receive further GDP inputs in the month ahead including retail sales volumes — accounting for around a third of household consumption which is the largest past of the economy — next Tuesday.

There’s still a long way to go but the early signs for GDP are looking good, says Andrew Hanlan, Senior Economist at Westpac Bank.

Real net exports are likely to make a positive contribution to economic growth in the March quarter 2018, whereas we anticipated a broadly neutral impact,” he says.

“These figures suggest that the export upswing has resumed.”

And Hanlan expects that trend to continue.

“The outlook for exports is positive in our view, led by LNG as new capacity comes on stream and services such as education and tourism in response to strong demand from the Asian region and complemented by the recent retreat in the Australian dollar,” he says.

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