Australia records another mammoth trade surplus, but the devil is in the detail as to why

  • Australia recorded another mammoth trade surplus in March, falling just short of the record high set a month earlier.
  • Stronger commodity exports and prices has been one factor behind the lift, but so too has been weakness in imports of consumer-related products. The latter is not a good sign for household demand in early 2019.
  • Net trade is likely to add modestly to GDP in the March quarter, reflecting firmer export and weaker import volumes.
  • Booming commodity prices are helping to fill the government’s coffers, potentially paving the way for this to be redistributed to households who are clearly struggling at present.

Australia recorded another mammoth trade surplus in March, continuing the trend seen for more than a year.

However, a major factor behind the string of large surpluses — aside from booming commodity prices — has been weakness in consumer imports, providing another indication that household demand remains weak.

According to the Australian Bureau of Statistics (ABS), a surplus of $4.95 billion was recorded after adjusting for seasonality, breezing past already lofty market expectations for a smaller surplus of $4.49 billion.

To put the March figure into perspective, it was the second highest level on record, only surpassed by the $5.14 billion surplus recorded a month earlier.

Australia has now recorded a surplus in excess of $2 billion in nine of the past 10 months.

For the March quarter, Australia recorded a trade surplus of $14.2 billion, the highest level on record by some margin.

The slightly smaller trade surplus in March reflected that exports fell faster than imports during the month.

Exports slipped by 1.8% to $39.34 billion after seasonal adjustments, led by a sizeable decline of $626 million in volatile non-monetary gold.

Elsewhere, the value of non-rural goods — the largest category in dollar terms — fell by $189 million from a month earlier, partially offset by an increase of $129 million for rural goods.

The decline in non-rural goods reflected a massive $1.18 billion decline in the value of metal ores and minerals, predominantly iron ore. LNG exports also slipped by $64 million, partially offset by coal exports that surged by $8274 million.

Services exports dipped by $18 million from a month earlier.

On the other side of the trade ledger, imports declined by 1.5% to $34.4 billion, in seasonally adjusted terms.

Imports of capital and consumption goods fell by $344 million and $294 million respectively, partially offset by a $197 million increase in the value of intermediate and other merchandise goods.

The lift in intermediate and other merchandise goods reflected a spike in fuel imports which increased by $341 million on the back of higher crude oil prices.

For capital goods, imports of machinery/industrial equipment and industrial transport equipment declined by $226 million and $364 million respectively.

The weakness in consumption goods reflected weak car imports which declined by $353 million from a month earlier.

Services imports declined by a large $90 million during the month.

While the details of the March report were mixed, importantly, it looks like trade will contribute to quarterly GDP growth, a welcome development following news that retail sales during the quarter went backwards in real terms.

“Real net exports likely added to activity in Q1, potentially in the order of 0.4 percentage points,” said Andrew Hanlan, Senior Economist at Westpac Bank.

“Such an outcome represents a turnaround from the December quarter 2018, when net exports subtracted 0.2 percentage points from activity as export volumes declined by 0.7%, dented by the impact of the drought and temporary disruptions in the resources sector.”

While trade is likely to contribute to growth in the March quarter, Hanlan said the details of what drove the expected rebound were less impressive.

“Our preliminary calculations suggest that export volumes expanded modestly in the quarter, up by around 0.5%, with a sharp rebound in gold off a low base a key positive,” he said. Imports were soft in the quarter, contracting by almost 1.5% against the backdrop of patchy domestic demand across the private sector.

Like Westpac, the Commonwealth Bank tips trade will add around 0.4 percentage points to Australia’s upcoming Q1 GDP report, driven largely by weakness in consumer-related imports.

“This softness over the past year reflects weakness in textiles, footwear and apparel as well as cars,” said Belinda Allen, Senior Economist at the Commonwealth Bank.

However, while not a great indicator on the current strength of household demand, Allen says stronger commodity prices are helping to boost the government’s coffers, potentially paving the way for this income boost to be redistributed to consumers.

“The … trade performance bodes well for national income and government revenue,” she said. “This continues to suggest that further fiscal stimulus could be used to help the consumer sector of the economy.”

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