Australia: Downside surprise in trade balance numbers - Westpac

Andrew Hanlan, Research Analyst at Westpac, notes that in June, Australia’s trade surplus surprised to the downside, narrowing to $0.9bn, from a revised $2.0bn for May while the surplus for May was downgraded, lowered to $2.0bn from $2.5bn.

Key Quotes

“Imports for June were stronger than anticipated, increasing by 2.4% (+$730mn). We anticipated a small fall, -0.7% (-$200mn), led lower by weaker fuel prices. Fuel did fall, down $463mn. However, strength was evident in: capital goods, +$733mn; consumption goods, +$194mn; and gold, +$238mn.”

“Exports declined in June, but not as sharply as expected. Exports declined by 1.4%, -$439mn vs a forecast -4.0%, -$1.3bn. Weakness was evident in metal ores, -$470mn, and coal, -$340mn, on weaker prices and volumes, broadly as anticipated. The upside surprises were in the volatile gold segment, +$406mn, and fuels were little changed, whereas we expected a decline on lower volumes.”

“Turning the focus to the June quarter, the trade surplus narrowed to $2.8bn from $7.5bn for Q1.”

“Our preliminary calculations suggest that the narrowing of the trade surplus is due entirely to weaker commodity prices, which dipped in the quarter. The terms of trade fell by an estimated 5%, with export prices down around 4.5% and import prices up around 0.3%.”

“Real net exports have improved to have a neutral impact in Q2, we estimate. This follows net exports making a sharp subtraction of 0.7ppts in Q1, when export volumes fell by 1.6% due to weather disruptions. We were expecting net exports to be slightly positive in Q2, adding 0.1ppts, ahead of a sizeable positive contribution in Q3 as exports fully recover from earlier weather disruptions, including the impact of Cyclone Debbie. The slight downside on net exports for Q2 (flat v’s a forecast +0.1ppts) is likely to be offset by upside on domestic demand, eg retail sales and potentially business investment.”

“For Q2, we estimate that export volumes rebounded, up around 1.5%, notwithstanding a fall in coal shipments, with broad based strength ex coal. Import volumes also grew by around 1.5%, our initial calculations suggest, which is a little stronger than we anticipated.”