Australian trade data for January has just been released, and while another surplus has been recorded, it was far smaller than what many were expecting.
According to the ABS, the surplus narrowed to $1.302 billion in seasonally adjusted terms, well below the $3.8 billion level eyed by economists.
December’s trade surplus, originally reported at $3.511 billion, was also revised lower to $3.334 billion.
Still massive, but just not as massive as was originally thought.
Helping to explain the headline miss, the ABS said exports fell sharply while at the same time imports soared.
Exports fell by 3%, or $945 million, to $31.796 billion, led by a sharp drop in the value of non-monetary gold and non-rural exports.
The former fell by 39% to $1.051 billion while the latter slid 2% to $20.315 billion, and were partially offset by an increase in rural good and services exports.
Non-monetary gold — whether for exports and imports — is notoriously volatile from month-to-month.
For non-rural goods — the largest category by dollar amount — the decline was driven by a drop in the value of coal and metal ores and minerals exports (largely iron ore) of $406 million and $151 million respectively.
That was partially offset by an increase in the value of other mineral fuel exports (LNG) of $138 million.
The ABS said that volumes for iron ore and coal dropped substantially, explaining the decline in export values.
Not the best start for export volumes in the March quarter after helping to propel Australian GDP to an increase of 1.1% in the December quarter.
For rural goods, the ABS said most of the increase was due to higher exports of cereal grains that lifted by $118 million, and reflects the record-breaking winter drop reported by the government in February.
This table breaks down the trade report for exports and imports, looking at both the dollar and percentage change on a month earlier:
Imports, on the other hand, rose strongly, increasing by 4% to $30.494 billion with increases recorded across all categories.
The monthly total was the largest on record, surpassing the previous high of $30.4 billion set in September 2015.
The vast bulk of the increase was in imports of consumption, intermediate and other merchandise and capital goods, lifting by 7%, 4% and 3% respectively.
“The recent pickup in imports of consumption goods is encouraging, as it suggests households may be coming into 2017 on a solid footing,” said ANZ following the release of the trade report.
Economists at the Commonwealth Bank were also impressed with the rise in capital goods exports, noting that they are “relatively strong as goods are imported for infrastructure projects and the construction of LNG plants”.
Despite those promising signs, UBS said that the “strange” drop in will likely drag on Australian Q1 GDP, and reduces the chance of the nation recording its first current account surplus in several decades.
“While normalisation is likely ahead, the data to date implies a large net export drag on Q1 real GDP, and risk to our forecast Q1 current account surplus,” it said.
Despite the sharp narrowing in the surplus, and potentially dragging on real GDP growth in the current quarter, the reaction in financial markets has been negligible with movements continuing to be dictated by the shift in US bond yields witnessed over the past 24 hours.