Australia's trade surplus just missed by a mile

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Australia’s trade surplus narrowed sharply in June.

According to data released by the Australian Bureau of Statistics (ABS), the surplus fell to $856 million in seasonally adjusted terms, missing expectations for a smaller decline to $1.8 billion.

May’s trade surplus, previously reported at $2.471 billion, was revised down to $2.024 billion.

Over the month, the ABS said that exports fell by 1% to $31.779 billion.

The value of non-rural goods fell 4% to $19.564 billion while services exports slid 2% to $6.135 billion.

For non-rural goods, the value of metal ores and minerals (mainly iron ore), coal, coke and briquettes and other mineral fuels (LNG) all decreased, falling 7%, 6% and 1% to $6.485 billion, $4.942 billion and $3.156 billion respectively.

“On current tracking, exports should improve in nominal terms into Q3 given the rally in iron prices, though some of this will be trimmed by AUD strength,” said Ben Jarman, economist at JP Morgan.

In volume terms, iron ore exports fell while those for coal and LNG increased.

Those declines were partially offset by a small increase in rural goods to $4.133 billion and an enormous surge in non-monetary gold exports which jumped by 27%, or $406 million, to $1.921 billion.

This table from the ABS breaks down June’s trade report in seasonally adjusted terms.

Source: ABS

On the other side of the ledger, imports rose by 2% to $30.923 billion with all categories except intermediate and other merchandise goods recording an increase from a month earlier.

The ABS said the value of capital goods, non-monetary gold and consumption goods imports increased by 13%, 76% and 2% to $6.304 billion, $551 million and $8.562 billion respectively.

While normally a good sign for business investment in Australia’s GDP report, Paul Dales, chief Australia and New Zealand economist at Capital Economics, said the lift in capital goods imports was likely driven by one-of factors in June.

“That might not be as strong a signal for business investment as it looks, since it was due to huge leaps in telecoms equipment and aircraft, which are probably related to some one-off orders,” he said following the release of the report.

They increased by 78% and 410% respectively from a month earlier.

Imports of intermediate and other merchandise goods was the only category to register a decline, falling 4% to $9.119 billion.

Having crunched both export and imports volumes for the June quarter, Dales said net exports would likely make no significant contribution to Australia’s Q2 GDP report that will be released in just over a month’s time.

“After taking into account possible price effects, we estimate that real exports rose by a bit more than 1.5% quarter-on-quarter (q/q) in the second quarter as a whole and that real imports rose by a bit less than 1.5% q/q,” he says.

“That would be consistent with net trade having no real influence on real GDP growth in the second quarter.”

JP Morgan’s Jarman shares a similar view, although he expects that net exports will probably add to growth during the quarter.

“We expected trade to add slightly to GDP in 2Q, up 0.1 percentage point, and we are tracking close to that after today’s data,” he says.

“We are currently forecasting 0.5% q/q on GDP growth overall for Q2, and will revisit this after tomorrow’s data on retail volumes.”

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