Trade account back in the red

From

Trade: New Vehicle Sales

  • Australia has recorded its first trade deficit in 11 months. The trade balance eroded from a surplus of $1,433 million in January to a deficit of $205 million in February. The impact of the natural disasters was the key driver behind the weaker than anticipated result.
  • Exports fell by 2.4 per cent in February while imports rose by 4.9 per cent. The slide in exports was largely driven by the non-rural component – metal ores and minerals which fell by $543 million or 8 per cent, while imports of fuel and lubricant rose by $561 million or 26 per cent. Also non monetary gold export receipts fell by $688 million in February.
  • In March, 93,984 vehicles were sold, down by 0.8 per cent compared with a year ago. In seasonally adjusted terms CommSec estimates that sales rose by 1.0 per cent in the month.

What does it all mean?

  • Over the past year higher commodity prices and relatively strong demand for coal and iron ore have helped support the Australian economy as the global recovery gained traction. However in recent times the economic landscape has changed once again. The economy has been going through a soft patch and now the trade balance is back in the red.
  • Australia has notched up its first trade deficit in 11 months – largely due to the impact of the floods on coal and iron ore exports, but also due to the strength of the Australian dollar and the resulting additional demand for cheaper imports, and higher world oil prices.
  • Importantly the latest trade data is for February and the recent strength of the Australian dollar will place further downward pressure on the trade balance in coming months. This is especially likely given that the Aussie rallied a further 1.4 per cent over March and broke through USD104 cents in early April. Not only does the stronger Aussie make exports less competitive but cheaper imports will also be in stronger demand.
  • The main determinant on how quickly the trade balance gets back into the black will clearly be based on how quickly the coal and iron ore miners can get back to business. And the anecdotal commentary suggests that the trade accounts will again be back in surplus in the next couple of months.
  • Interestingly the economy as a whole generated an additional $20 billion dollars in export revenue in just under a year. Despite the boost to Australian coffers the impact has yet to have a resounding effect on the economy. The weakness in business and consumer spending suggests the additional income is being saved rather than spent.
  • However as the Reserve Bank has highlighted, increased savings will eventually mean a pickup in spending down the track. It is the multiplier effect that essentially the Reserve Bank is banking on to spur domestic growth over the coming year. At present the additional income is not being spent, but as the recovery gains traction it is likely that Australian businesses and consumers will follow through on spending and investment plans.

What do the figures show?

International trade

  • Australia has recorded its first trade deficit in 11 months. The trade surplus fell from $1,433 million in January to a deficit of $205 million in February.
  • Exports of goods and services fell by 2.4 per cent in February. Imports of goods and services rose by 4.9 per cent. Exports are up 12.1 per cent on a year ago while imports are up 8.1 per cent on a year earlier.
  • Rural exports rose by 11.8 per cent in February while non-rural exports fell by 1.7 per cent.
  • Within non-rural exports, metal ores and minerals was the major driver of the weakness falling by $543 million or 8 per cent.
  • Non-monetary gold exports fell from $1,535 million in January to $847 million in February.
  • Within imports, consumer imports rose by 0.2 per cent in February, capital goods imports rose by 2.2 per cent while intermediate goods imports rose by 11.6 per cent (fuels and lubricants up by $561 million).
  • While the physical trade of goods is in surplus, the services account remains mired in deficit – narrowing from the record deficit of $737 million posted in January to a $700 million shortfall in February. The high Australian dollar is a key culprit, depressing tourism receipts.

Car sales:

  • The Federal Chamber of Automotive Industries reported that 93,984 new cars were sold in March, down 0.8 per cent on a year ago. Passenger car sales were 6.5 per cent lower than a year ago, 4WDs were up 6.6 per cent and “other vehicles” (trucks, utes etc) were up 6.7 per cent.

What is the importance of the economic data?

  • The monthly International Trade in Goods and Services release from the Bureau of Statistics provides estimates on exports and imports of physical goods (such as coal, beef and computers) and services (such as travel receipts). The balance of goods and services (BOGS) is a narrower description of Australia’s external position than the current account estimates. The import data is a useful gauge of consumer and business spending while exports reflect global demand as well as domestic influences such as drought.
  • The Federal Chamber of Automotive Industries release figures on new car sales at the start of each month. The data is useful in gauging consumer spending behaviour.

What are the implications for interest rates and investors?

  • The strength of the Australian dollar continues to have a detrimental impact on the services sector. Australia’s service sector has notched up its 17th consecutive deficit and the shortfall is sitting just shy of the record high $737 million reached in January. The Aussie dollar strength is making Australia a less attractive destination for overseas tourists and potential international students. Interestingly when the Aussie fell below US70c in 2009 the services sector notched up a series of surpluses.
  • While the floods in Queensland have had a detrimental impact on coal exports, in coming months production will once again ramp up. Added to firmer volumes will be higher contract coal prices, ensuring that trade surpluses are back on the agenda. That is provided the weather doesn’t take an extreme turn for the worse.

Produced by Commonwealth Research based on information available at the time of publishing. We believe that the information in this report is correct andany opinions, conclusions or recommendations are reasonably held or made as at the time of its compilation, but no warranty is made as to accuracy, reliability or completeness. To the extent permitted by law, neither Commonwealth Bank of Australia ABN 48 123 123 124 nor any of its subsidiaries accept liability to any person for loss or damage arising from the use of this report. The report has been prepared without taking account of the objectives, financial situation or needs of any particular individual. For this reason, any individual should, before acting on the information in this report, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice. In the case of certain securities Commonwealth Bank of Australia is or may be the only market maker. This report is approved and distributed in Australia by Commonwealth Securities Limited ABN 60 067 254 399 a wholly owned but not guaranteed subsidiary of Commonwealth Bank of Australia. This report is approved and distributed in the UK by Commonwealth Bank of Australia incorporated in Australia with limited liability. Registered in England No. BR250 and regulated in the UK by the Financial Services Authority (FSA). This report does not purport to be a complete statement or summary. For the purpose of the FSA rules, this report and related services are not intended for private customers and are not available to them. Commonwealth Bank of Australia and its subsidiaries have effected or may effect transactions for their own account in any investments or related investments referred to in this report.

You must be logged in to post or view comments.