The last of Australia’s March quarter GDP inputs have just been released, and it’s not good news.
Not only was the current account deficit larger than expected, but the risks of Australia recording another negative growth quarter — which seemed to have abated — have suddenly intensified.
According to the ABS, the current account deficit fell by $403 million to $3.108 billion in the March quarter, leaving it at the narrowest level since the September quarter of 2001.
While smaller than the prior quarter, it was larger than the $500 million deficit that had been expected by markets. Some forecasters had even expected a small surplus to have been recorded.
Within that figure, the ABS said that balance on goods and services soared to a record high of $9.242 billion, with the value of exports rising at a faster pace than imports.
Exports of good and services increased by $4.852 billion, outpacing a smaller lift in imports of $1.723 billion.
The increase in the value of goods and services exports was largely due to soaring commodity prices during the quarter, something that have subsequently reversed in the June quarter.
Reflective of higher commodity prices, Australia’s terms of trade — the value of Australia’s exports divided by its imports — rose by 6.6% to 109.7 in seasonally adjusted terms.
Helping to explaining the larger-than-expected current account deficit, the ABS said Australia’s primary income deficit widened by $2.712 billion to $11.94 billion, some 29% larger than the December quarter last year.
The primary income account shows income flows between residents and non-residents.
Adding to disappointing report, the ABS said that import volumes increased while export volumes fell, adding to downside risks to Australia’s Q1 GDP report released tomorrow.
Net exports, as it is known, is expected to slice a whopping 0.7 percentage points off real GDP growth during the March quarter, substantially higher than the 0.4 percentage point contraction that had been expected.
And given that many were forecasting a tiny increase in real GDP, it’s increased the odds that a negative figure could eventuate.
Exacerbating those concerns, public spending — accounting for around 20% of the Australian economy — increased by just 0.2% for the quarter, well below the levels expected.
Financial markets have been quick to price in risk of a negative growth quarter, sending the Australian dollar sharply lower in the minutes following the release.
Australian government bond futures have also strengthened (yields lower) with 3-years rallying 4 ticks to 98.32 following the report.