Balance on Goods and Services – September 2015
- The goods and services trade deficit came in at $2.3bn in September. Total exports rose by 3.4% and total imports rose by 1.7%.
- A recovery in iron ore prices lifted export receipts over September. The start of new LNG plant production means further upside to resource volume exports.
- The tourism balance continues to improve and is tracking in line with changes in the Aussie dollar.
The September goods and services trade deficit came in below market expectations ( $‑2.9bn vs CBA (f): $‑3.2bn). The ABS has made some notable revisions to history which has made trade deficits over recent months look smaller. Australia has been running a goods and services trade deficit for 2015. But, the trend over recent months has been towards smaller deficits.
Goods exports rose by 4.1% over September, the largest monthly increase since early 2014. A 7.9% surge in iron ore exports drove the outcome thanks to a pick‑up in iron ore prices. Iron ore export volumes also remain at high levels. Metal exports (excluding gold) also recorded a 31% lift over September (but from a lower base). Rural exports were 1.1% higher over September.
New LNG shipments will lift resource export volumes over coming months. In October, Gladstone LNG began exporting and will show up in the trade numbers over the next few months.
On the import side, consumption goods rose by 3.2% in September driven by a large increase in non‑industrial transport equipment. Capital goods imports rose by 2.2% while intermediate goods were 1.5% lower over the month. There was a large fall in fuel and lubricants imports (because of low oil prices).
On the services side of the ledger, the tourism balance continues to move in line with trends in the Aussie dollar (see right hand chart). Tourism exports are lifting (international visitors spending in Australia) and tourism imports have flat‑lined (domestic residents spending overseas). This trend is positive for domestic retailers and also the states that have a specialisation in tourism (in particular QLD).
Based on today’s trade data, along with other indicators, the current account deficit looks like it was smaller in QIII. And the terms of trade fell again over the quarter. A falling terms of trade means an drag on the income side of the economy. Our commodities strategists are expecting some further weakness in Australia’s key commodity prices over 2016.
Alongside this expectation is our forecast for the Australian dollar to depreciate further which puts more upward pressure on imported prices and also helps to lift AUD‑priced exports. This means that the income drag from a lower terms of trade has further to run and looks most likely to ease in late 2016.