Sharp improvement in external positionGovernment Finance; Balance of Payments
Current Account: The broadest measure of the trade accounts – the current account – improved in the March quarter (smaller deficit), with the deficit narrowing from $14,661 million to $10,469 million.
Debt servicing: The ratio of net income on foreign debt to exports of goods and services stood at 5.8 per cent in the March quarter, the best (lowest) level in 36 years.
Government sector: Overall, spending by the government sector rose by 0.8 per cent in the March quarter after rising by 2.1 per cent in the December quarter.
Economic growth: The Australian economy may have grown by around 1 per cent in the March quarter and 2.9 per cent over the year. Net exports added 0.3 percentage points to quarterly growth.
What does it all mean?
Australia’s trade accounts are in pretty good shape, just like the broader economy. Australia is paying its way with exports exceeding imports. The current account is still in deficit, but largely as a result of repayments of debt on the accumulated deficits recorded over numerous decades.
The debt servicing ratio was at 36-year lows in the March quarter at 5.8 per cent.
The trade accounts are expected to improve even further over the year as LNG exports increase. The bottom line is that Australia is paying its way in the world and is easily servicing its debt commitments.
The economy is growing near its supposed speed limit of around 3 per cent.
What do the figures show?Balance of Payments
The broadest measure of the trade accounts – the current account – improved in the March quarter (smaller deficit), with the deficit narrowing from $14,661 million to $10,469 million.
The balance of goods and services was in surplus by $4,083 million in the March quarter after a $1,022 million deficit in the December quarter.
In real terms exports of goods and services rose by 2.4 per cent in the March quarter with imports up by 0.5 per cent. Export prices rose by 4.8 per cent in the quarter with import prices up by 1.5 per cent.
Exports of rural goods rose by 2.9 per cent in the March quarter in real terms with a 3.3 per cent rise in exports of non-rural goods outpacing a 4.8 per cent fall in exports of rural goods. Exports of non-monetary gold also rose by 18.9 per cent.
Across rural exports, volumes of cereal grains fell by nine per cent in the March quarter with exports of “other rural” goods down seven per cent.
Across non-rural exports, exports of coal rose four per cent, metal ores and minerals rose two per cent and “other mineral fuels (including iron ore) rose by 12 per cent.
Imports of consumption goods fell by 0.3 per cent in the March quarter as did intermediate goods. But capital goods imports were up by 4.3 per cent.
The trade sector (exports less imports) will add 0.3 percentage points to economic growth in the March quarter.
Terms of trade (ratio of export to import prices) rose by 3.3 per cent in the March quarter, with an increase of 4.8 per cent in export prices outpacing a 1.5 per cent increase in import prices.
Net foreign debt rose from $1,024.15 billion as at the end of the December quarter to $1,025.8 billion at the end of March.
The debt serving ratio (net income on foreign debt, ratio to exports of goods and services) improved from 6 per cent to 5.8 per cent in the March quarter – the lowest ratio in 36 years.
Government Finances
Government consumption spending rose by 1.6 per cent in the March quarter after a 2.2 per cent increase in the December quarter. Total public investment fell by 2.0 per cent in the March quarter after rising by 1.7 per cent in the December quarter. Overall, spending by the government sector rose by 0.8 per cent in the March quarter after rising by 2.1 per cent in the December quarter.
What is the importance of the economic data?
The quarterly Balance of Payments figures have few short-term effects on financial markets. The importance of the data is merely to highlight Australia’s trading position with the rest of the world as well as the contribution of foreign trade (exports less imports) to the latest estimates of economic growth.
The Australian Bureau of Statistics releases the quarterly Government Finance Statistics near the start of March, June, September and December. The data details public sector consumption and investment spending and indicates the sector’s contribution to economic growth.
What are the implications for interest rates and investors?
Australia’s trade accounts are of no concern to rating agencies or foreign investors. Australia is paying its way in the world and can easily meet its debt obligations.
The latest external accounts are supportive of the Australian dollar at current levels.
Australia’s economy probably grew around 1 per cent in the March quarter with annual growth near the supposed “speed limit” of 3.00 per cent. The economy is well on track to grow 3.0 -3.25 per cent in 2018/19. And growth of this magnitude would allow the Reserve Bank to lift interest rates from emergency lows.
CommSec expects interest rates to remain unchanged until early 2019.
Published by Craig James, Chief Economist, CommSec
