Second largest trade deficit with the US everInternational trade
Trade surplus: A trade surplus of $1,055 million was posted in January following a downwardly revised trade deficit of $1,146 million in December (previously reported as a deficit of $1,358 million). The rolling 12-month surplus, however, fell to $11.4 billion from $11.9 billion.
US trade deficit second largest on record: Australia’s rolling annual trade deficit with the US rose to $18.5 billion in January from $18.1 billion in December – the largest annual deficit in over five years and the second largest ever recorded. The trade data has the potential to affect the Aussie dollar so it may be important for exporters.
What does it all mean?
There has been a lot of focus on global trade in recent days. US President Donald Trump’s proposed import tariffs on steel and aluminium has rattled financial markets and intensified political frictions.
Concerns about retaliation from other countries and a fullblown trade war have increased market volatility as investors become wary about the potential impact on strong synchronised global economic growth.
Australia recorded its second largest trade deficit with the US ever in January. The trade deficit now stands at $18.5 billion in rolling annual terms. And imports from the US rose to a record high of $30.3 billion in the year to January. Exports to the US account for just 3.9 per cent of Australia’s total exports.
So while US tariffs have the potential to disrupt global growth – and therefore Australia – our export income from the US continues to decline. Exports to the US account for 0.8 per cent of Australia’s total steel and 1.5 per cent of our total aluminium exports according to the Department of Foreign Affairs and Trade.
And according to the Department of Agriculture and Water Resources the US accounts for 19.7 per cent of Australia’s red meat exports as at 31 December 2017. So potential US tariffs on Aussie meat are of arguably greater concern.
Australia posted a large trade surplus in January driven by stronger exports and a decline in imports. Imports decelerated after posting the strongest annual growth rate in six years in December.
After net exports detracted from economic growth in the December quarter this was an encouraging start to the year. It was the largest trade surplus recorded since September last year.
Exports of liquefied natural gas (LNG) rose, as did major bulk commodity exports, iron ore and coal. Metals were also a contributor with gold exports surging by the most in 18 months.
Australia’s growth engine, the services sector, was also a positive contributor to overall exports, but imports also rose a little.
What do the figures show?
A trade surplus of $1,055 million was posted in January following a downwardly revised trade deficit of $1,146 million in December (previously reported as a deficit of $1,358 million). The rolling 12-month surplus, however, fell to $11.4 billion from $11.9 billion.
The net services accounts improved from a $304 million deficit to a deficit of $258 million.
Exports of goods and services rose by 4.3 per cent in January (goods rose by 5.2 per cent) – the best monthly growth rate in eight months.
Imports of goods and services were down by 2.4 per cent (goods down by 3.2 per cent) – the largest monthly decline in eleven months.
Exports increased by 3.2 per cent on a year ago, while imports are up 4.7 per cent, declining after the largest increase in almost six years in December.
Rural exports fell by 8.4 per cent in the month – the largest decline in two years. However, non-rural goods rose by 4.3 per cent and gold exports surged by 53.9 per cent, the biggest increase in 18 months. Gold exports had declined by 22.8 per cent in November and 0.6 per cent in December.
Within imports, consumer imports fell by 6.5 per cent in January with capital goods imports down by 1.5 per cent and intermediate goods imports fell by 0.6 per cent.
Consumption goods imports decreased by 2.6 per cent on a year ago while capital goods imports were down by 0.7 per cent. But intermediate goods imports were up by 15.1 per cent following a 20.2 per cent increase in December.
Australia’s annual exports to China fell to US$99.2 billion in the year to January from U $99.6 billion in the year to December. Exports to China are up 17.0 per cent on a year ago. Exports to China accounted for 32.9 per cent of Australia’s total exports.
Australia’s annual imports from China rose to a record high of $64.4 billion in the year to January, up from $64.1 billion for the year to December. Imports were up by 7.4 per cent on a year ago, declining from 7.9 per cent over the year to December. Imports from China accounted for 22.1 per cent of Australia’s total imports.
Australia’s rolling annual trade surplus with China fell to $34.8 billion in January from $35.5 billion in December – the third consecutive decline.
Australia’s annual exports to the US rose to US$11.8 billion in the year to January from U $11.7 billion in the year to December. Exports to the US are down by 1.0 per cent on a year ago. Exports to the US accounted for 3.9 per cent of Australia’s total exports.
Australia’s annual imports from the US rose to a record high of $30.3 billion in the year to January, up from $29.8 billion for the year to December. Imports were up by 5.2 per cent on a year ago, rising from 3.6 per cent over the year to December. Imports from the US accounted for 10.4 per cent of Australia’s total imports.
Australia’s rolling annual trade deficit with the US rose to $18.5 billion in January from $18.1 billion in December – the largest annual deficit in over five years and the second largest ever recorded.
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 March 8 2018 3 Economic Insights: Second 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?
Australia’s trade position improved at the beginning of 2018. Additional capacity from the LNG sector is expected over the remainder of this year. Global growth is solid and trade flows remain positive. It is hoped that net exports will make a positive contribution to economic growth this year.
Activity in China’s manufacturing and services sectors remain expansionary, implying that demand for Aussie exports remains firm. Summer is approaching and Chinese construction and building activity normally picks-up.
Increased potential US trade protectionism would disrupt positive global trade flows, adversely impacting global and domestic economic growth. That said, the US has diminished in its importance relative to China and emerging Asia as a trade partner over time. Our trade deficit is growing on the back of rising imports, but our exports to the US are declining.
CommSec expects no change to official interest rates until at least the December quarter.
Published by Ryan Felsman, Senior Economist, CommSec
Second largest trade deficit with the US everInternational trade