Trade surplus soars; US trade near record lows


International trade

  • Trade surplus: The trade surplus rose from $725 million in May (previously $827 million) to $1,873 million in June. It was the 11th surplus in 13 months.
  • Net exports: Net exports (exports less imports) is expected to add 0.1 percentage point to economic growth in the June quarter.
  • Trade with the US: US exports and imports account for just 6.7 per cent of Australia’s total trade in goods – just a smidgen off all-time lows.

The trade data has the potential to affect the Aussie dollar so it may be important for exporters and importers.

What does it all mean?

  • Australia continues to pay its way in the world, with the on-going trade surpluses acting as a fundamental support for the currency. CommSec expects the Aussie dollar to hold in a US72-76 cent range over the coming year. The trade surplus may narrow in coming months due to the drought but any softening is from a position of strength.
  • When was the last time that Australia had a trade surplus, economic growth near 3 per cent, low inflation near 2 per cent, low unemployment just over 5 per cent and a budget deficit that is shrinking and around 1 per cent of GDP? It is hard to find fault with our economic circumstances.
  • US President Donald Trump would have few concerns with the US-Australia trade imbalance. It is in the US favour by $18 billion over 2017/18. By contrast Australia’s trade surplus with China stands at almost $38 billion.
  • The US has become far less important to Australia in terms of international trade. US export and import of goods account for just 6.7 per cent of Australia’s total trade in goods – just a smidgen off all-time lows. By comparison China accounts for 28 per cent of Australia’s total 2-way trade.

What do the figures show?

International trade

  • The trade surplus rose from $725 million in May (previously $827 million) to $1,873 million in June. It was the 11th surplus in 13 months. The rolling annual surplus rose from $4.848 billion to $6.281 billion.
  • The net services deficit narrowed from $347 million to a 12-month low of $238 million.
  • Exports of goods and services rose by 2.6 per cent (goods rose by 2.9 per cent).
  • Imports of goods and services fell by 0.7 per cent (goods fell by 0.8 per cent).
  • Exports were up by 12.9 per cent on a year ago, while imports are up 10.4 per cent.
  • Rural exports rose by 4.6 per cent – the fourth gain in five months. Non-rural goods rose by 2.4 per cent. Gold exports rose by 5.6 per cent after rising by 22.4 per cent in April.
  • Exports were driven by “other rural”, up $98 million; cereal grains up $67m; metal ores and minerals, up $118m; “other non-rural (incl. sugar and beverages)”, up $117m; “other manufactures”, up $109m; gold, up $104m; and travel credits, up $90m.
  • Within imports, consumer imports fell by 0.2 per cent; capital goods imports rose by 5.0 per cent and intermediate goods imports fell by 3.6 per cent.
  • Consumption goods imports were up by 5.5 per cent on a year ago while capital goods imports were up by 11.7 per cent and intermediate goods imports were up by 19.2 per cent.
  • Australia’s annual exports to China rose from US$102.51 billion in May to US$105.44 billion in June – a new record high. Exports to China are up 11 per cent on a year ago. Exports to China account for 33.6 per cent of Australia’s total exports, just off record highs.
  • Australia’s annual imports from China rose from US$66.82 billion to US$67.74 billion – a record high. Annual imports were up by 10.9 per cent on a year ago. Imports from China accounted for 22.5 per cent of Australia’s total imports, down from a record 23.45 per cent in April 2017.
  • Australia’s rolling annual trade surplus with China rose from $35.69 billion to $37.70 billion.
  • Australia’s rolling annual trade deficit with the US narrowed from $18.27 billion to $18.05 billion. Imports from the US account for just 9.9 per cent of total imports – the lowest share in 30 years of records.

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.

What are the implications for interest rates and investors?

  • The trade data has no implications for interest rate settings. CommSec expects rate settings to remain unchanged over 2018.
  • The solid position of our trade accounts would be viewed positively by foreign investors and thus provide support to the Aussie dollar. But interest rate differentials and export prices have the main influence on the value of our currency.

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