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The January trade surplus surged to $1433mn, following a smaller December surplus of $591mn.
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Exports of goods and services rose by 3.7% over January while imports lifted by 0.8%. Export growth was concentrated in resource exports.
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The depreciation of the Aussie dollar is likely to re‑direct offshore spending back onshore which will mean a contraction in imports. Less mining capex related imports will push imports the same way.
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Resource exports will remain a dominant part of the export story and will continue to add significantly to GDP growth.
The January trade surplus was much larger than expected, coming in at $1433mn. Market consensus was looking for a surplus around $100mn (CBA (f): $200mn). The trade balance has now been in surplus for three consecutive months, after a continuous moderation in trade deficits over HII 2013. Rising resource exports and falling capital goods imports mean that trade surpluses are likely to continue over the near‑term.
The largest increase in exports in January was in the non‑rural goods category, driven by higher resource exports (+3.2%). The depreciation in the Aussie dollar is positive for Australia’s key bulk commodity exports which are priced in US dollars. Rural exports had another solid month, rising by 4.9% following a surge in wheat exports in the previous month. In January, the rise in rural exports was concentrated in “other rural” (+6.4%) and meat exports (+11.3%). The volatile non‑monetary gold category rose by 44.2% in January, after falling by 28% in the previous month.
The modest rise in imports was a combination of higher intermediate goods imports (+7.8%), a fall in capital goods imports (‑9.4%) and a rise in consumption goods imports (+0.7%). The rise in intermediate imports was driven by a 6.0% lift in fuel imports. This is a direct impact of the lower Aussie dollar lifting fuel prices. Capital goods continue to trend lower as the construction‑intensive part of the mining story slows down. This trend will continue over coming months. The lower Aussie dollar looks to be having a marginal impact on redirecting offshore spending back onshore. The historical experience tells us that this trend will become more apparent as higher import prices work their way into consumer spending decisions.
On a rolling annual sum, exports to China were 37.3% of total goods exports which is the highest level on record. Resource exports will continue to dominate the trade story to China. But, service exports will also be an important. Tourism is the third biggest export earner and education is the 5th largest. The emergence of the Asian middle income consumer brings the opportunity for an increase in both goods and services exports. History tells us that middle income consumers demand certain goods such as: larger and better quality housing; more and better quality food; and more consumer durables. Middle income consumers also demand certain services such as education and holidays. Education visas are rising and China and India are already the fastest growing component of the Australian tourism market.
Strong growth in resource exports is an important part of the necessary growth transition. This week’s QIV GDP data indicated that net exports made a significant contribution to growth over the quarter. The transition of the mining boom from investment to production phase means that resource exports will continue to make a significant contribution to growth. As the majority of LNG projects finish construction (around 2015), there will be a significant rise in export volumes. Thereafter, iron ore exports will move in the same direction. Large trade surpluses are part of the scenario where we may ultimately switch from current account deficits to surpluses.
