Australia's trade surplus narrows as fuel imports surge

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  • Australia’s trade surplus narrowed in July as exports fell and imports held steady.
  • There are signs emerging that drought conditions are starting to impact some commodity exports. The value of iron ore exports also fell.
  • A surge in fuel imports helped to mask large declines in the value of consumption and capital goods imports, keeping the total value near steady.

Australia’s trade surplus narrowed marginally in July, driven partially by a huge surge in the value of fuel imports.

According to the Australian Bureau of Statistics (ABS), the surplus fell to $1.551 billion in seasonally adjusted terms, below the upwardly-revised $1.937 billion figure reported in June.

Even with the small decline, it was still above the $1.5 billion level expected by economists.

Exports fell by 1% to $36.07 billion, driven down by declines across most categories.

Volatile non-monetary gold exports fell by $189 million over the month. The value of non-rural goods — the largest category by value — also fell by $138 million from June.

The decline in the latter reflected weaker exports of iron ore as well as LNG and “other” non-rural goods which fell by $367 million, $40 million and $275 million respectively.

The fall in the “other” goods largely reflected a slump in sugar and honey exports.

Coal and metals exports provided some offset, increasing by $181 million and $370 million respectively from a month earlier.

The value of rural goods also fell by $76 million, partially offset by a $34 million increase in services exports.

ABS

On the other side of the ledger, the value of imports were near unchanged from month earlier, lifting from $34.495 billion to $34.519 billion.

Imports of intermediate and other merchandise goods jumped by $605 million while non-monetary gold increased by $69 million.

Those increases were offset by steep declines in the value of capital and consumption goods imports which declined by $429 million and $329 million respectively. Those categories are linked to business investment and consumer demand.

Services imports increased by $109 million.

The big increase in intermediate and other merchandise goods largely reflected a $712 million increase in the value of fuel imports. Over the half the decline in capital goods was explained by a $239 million reduction in civil aircraft imports.

All sub-categories of consumption goods fell, led by a $149 million decline in the value of textiles, clothing and footwear imports.

“It suggests that domestic demand may have eased at the start of the third quarter,” said Paul Dales, Chief Australia and New Zealand Economist at Capital Economics, in relation to the decline in consumption and capital goods imports.

“That’s one reason why we think the 0.9% rise in GDP in Q2 and the 3.4% gain over the past year will prove to be the high mark.

“An easing in consumption and private investment will probably soon lead to slower GDP growth.”

Further, Dales says there were also tentative signs in the July report that suggest the drought is starting to impact exports, a trend he expects will continue should conditions worsen.

“The drag from the drought was relatively small, with grains exports falling by 11% and wool exports down by 8%,” he says.

“We suspect that both resources and rural exports will struggle over the next six months, although the weaker dollar should help other exports.”

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