Australia’s trade deficit narrowed sharply in September, according to figures released by the ABS on Thursday.
In seasonally adjusted terms, the trade deficit came in at $1.227 billion, below the downwardly-revised $1.894 billion figure of August and expectations for a decline to $1.7 billion.
It was the smallest trade deficit since December 2014.
The value of exports climbed by 2%, or $426 million, to $27.254 billion, leaving it at the highest level seen in a year.
Imports fell by $241 million, or 1%, to $28.481 billion.
On the export side of the ledger, the value of non-rural goods jumped by $578 million to $15.98 billion while the value of rural goods increased by $174 million to $3.635 billion. Services exports edged up by $29 million to $6.081 billion.
The increase in exports came despite a sharp decline in the value of non-monetary gold exports which skidded by $353 million to $1.512 billion.
The jump in non-rural goods was driven by a surge in the value of coal exports which increased by $349 million to $3.229 billion. Exports of metal ores and minerals, almost entirely iron ore, fell by $2 million to $6.099 billion.
Australia’s third-largest goods export by dollar value — other mineral fuels — rose by $8 million to $1.951 billion.
Exports of metals excluding non-monetary gold also made a contribution to narrowing the trade deficit, rising by $102 million to $844 million.
For imports, the value of consumption goods slid by $223 million to $7.68 billion while capitals goods fell by $75 million to $5.148 billion. Intermediate and other merchandise goods was the only category aside from services to register an increase, rising by $179 million to $8.491 billion.
The value of non-monetary gold imports fell by $124 million to $618 million while services imports edged up by $3 million to $6.544 billion.
While the trade deficit has been slowly narrowing since hitting the highest level on record in December last year, it now appears likely that Australia will begin to run trade surpluses in the next few months given recent strength in both coal and iron ore prices, its largest goods exports by dollar value.
Coking and thermal coal spot prices have staged enormous rallies since the middle of the year while iron ore spot prices jumped by 15% alone in October.
“With coal exports around $3 billion per month, equivalent to a 10% share of total exports, the super spike of coal prices could make the trade deficit could disappear in coming months, and also lift nominal GDP to around 5% year-on-year,” said UBS’ Australian economics team following the release of the trade report.
“Indeed, since then, prices have posted a further massive increase in October and November. Hence, if these prices are sustained, there is an increasing prospect of a trade surplus and even larger boost to nominal GDP, which is a support to the AUD.”