Exports to China hit a record high as trade deficit widens in October

From

International Trade – October 2013

  • The October trade balance was a deficit of $529m – an increase of $258m on the deficit in September.
  • Exports declined by a very small 0.1% over the month and imports lifted by 0.8% to near record highs.
  • Australia ran a goods surplus of $427m over the month and a services deficit of $957m.  The services deficit is being driven by freight charges and related insurance charges.
Exports to China hit a record high: CBA

Exports to China hit a record high: CBA

Exports to China hit a record high, both as an absolute amount and also as a share of total exports.The October trade deficit of $529m came in worse than market expectations which centred on a $350m deficit {CBA(f) ‑$600m).  Australia has been running a trade deficit since December 2011.  Deficits have primarily been a result of a falling terms of trade.  The decline in commodity prices over the past two years has seen the value of our exports relative to imports fall.   Trade deficits therefore become more likely until volumes are sufficient to offset the price effect.  A softer AUD bodes well for export receipts, but pushes up the price of imports.

The 1% rise in imports over October was due to a lift in consumption goods (+1%), services (+1%) and other merchandise goods (+1%).  Imports of capital goods were largely flat.  Machinery and equipment imports fell by 5% over the month reflecting the slowdown in mining‑related capital expenditure.

Exports were largely flat over October despite a small decline of 2.4% in commodity prices (AUD terms).  This suggests that export volumes lifted.  Over the past year, export volumes have been rising while commodity prices have softened a little.  That is why net exports have being making a positive contribution to real GDP growth.  The QIII GDP figure showed that net exports contributed a sizeable 0.7ppts to real growth over the quarter.  This is a measurement of volumes.  But the trade balance is a nominal measure so changes in the prices of goods, as well as the volumes, matter.  In terms of the breakdown over the month, there were falls in rural exports (‑3%), other mineral fuels (‑11%), and metal ores and minerals (‑1%).  These were partially offset by a solid rise in coal, coke and briquettes (+7%) on the back of a solid lift in volumes.

On a geographic basis, exports to China hit a record high during over the month, surpassing $9bn for the first time.  Exports to China are up a whopping 58% on year ago levels.  Its share of exports from Australia also hit a record high, surpassing 40% for the first time.  These numbers highlight just how important the Chinese economy is to Australia’s growth at present.  And why economic data out of China is having an increasingly bigger impact on the AUD and the Australian equity and interest rate markets.

From an RBA perspective, today’s figures are neutral for policy setting.  Resource export volumes are solid, reflecting a continuing increase in capacity as the mining boom transitions from the investment phase to the extraction phase.  The AUD has pulled back to be trading near USD0.90 this week and the central bank will be comforted that the local currency looks to once again be playing its traditional role of buffering incomes and local activity.

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