Aussie car imports hit 10½-year lows;

29th successive trade surplus; Record exports to China
International trade

Foreign trade: The trade surplus eased to $8.03 billion in May (consensus: $9 billion surplus) from $7.83 billion in April. (The surplus had hit a record high $10.439 billion in March). The rolling annual surplus was a record high $77.29 billion in the year to May, up from $74.48 billion in April.

Car imports: The value of motor vehicle imports fell by 47 per cent to a 10½-year low of $1.165 billion in May.

Record trade: Australia’s annual exports to China were at new record highs of $150.5 billion in May with annual exports to the US at a record $17.6 billion.

The trade data is instructive on income flows in the economy and consumer and business activity.

What does it all mean?

• Australia continues to run up large trade surpluses – a pretty good achievement for a country that only begun running surpluses consistently from early 2017! Of course, the global backdrop is extraordinarily challenging at the moment given that we are in the midst of the biggest economic downturn since the Great Depression.

• In May, the country posted its 29th successive surplus. At the height of the virus outbreak a record trade surplus of $10.4 billion was recorded in March. During the pandemic monthly surpluses have remained solid, but have eased to $7.8 billion in April and $8 billion in May.

• Australia’s annual exports to China and the US both hit record highs in May. With China’s economy re-opening and infrastructure-related stimulus providing support, demand for Australia’s largest export – iron ore – remains strong. Recent data from Global Ports shows that Aussie shipments of iron ore totalled a record 21.1 million tonnes last week. And total exports by Australia’s four biggest miners surged to 82.2 million tonnes in June, up 10 per cent from a year ago. So it’s little wonder with iron ore prices hovering around US$100 a tonne that the value of iron ore exports in rolling annual terms is near record highs at $101.6 billion in May.

• That said, China’s demand for coal continues to ease. Total Aussie exports of coal fell to a 2-year low of $58.34 billion on a rolling annual basis in May.

• Domestic demand in Australia remains weak due to the virus-induced economic downturn and high jobless rate. In fact, consumer imports plummeted 13.9 per cent in May – the biggest fall in 33½ years – to be down by a record 14.2 per cent over the year. And the value of motor vehicle imports fell by a whopping 47 per cent to a 10½-year low of $1.165 billion in May as Aussies continued to shun new car purchases.

What do the figures show?

International trade – May

• The trade surplus eased to $8.03 billion in May (consensus: $9 billion surplus) from $7.83 billion in April. The surplus hit a record high $10.44 billion in March. The rolling annual surplus was a record high $77.29 billion in the year to May, up from $74.48 billion in April.

• Exports of goods and services fell by 4.3 per cent (exports of goods fell by 5.4 per cent).

• Imports of goods and services fell by 6.1 per cent (goods imports fell by 6.9 per cent).

• Rural exports plunged by 10.1 per cent – the biggest fall in over 2 years. Exports of non-rural goods fell 4.3 per cent. Gold exports declined 11.6 per cent.

• Major moves: Cereal grains and cereal preparations, fell $184 million or 31 per cent; Wool & sheepskins down $69 million or 31 per cent; Transport equipment down $59 million or 18 per cent; Coal, coke and briquettes, down $635 million or 13 per cent; and Metal ores and minerals, down $199 million or 2 per cent.

• Within imports, consumer imports plummeted 13.9 per cent – the biggest fall in 33½ years; capital goods imports declined 6.9 per cent and intermediate goods imports fell by 8.1 per cent – the biggest fall in 4 ½ years.

• Services exports rose by 1.6 per cent, but services imports fell by 1.1 per cent in May.

• A record net services surplus of $2.288 billion was posted in May.

• Australia’s annual exports to China rose from $150.41 billion to a record $150.50 billion in May. Exports to China are up 15.5 per cent on a year ago. Exports to China account for a record 38.94 per cent of Australia’s total exports.

• Australia’s annual imports from China lifted from $78.51 billion in April to a record $79.27 billion in May. Annual imports were up by 1.3 per cent on a year ago. Imports from China still accounted for a record 26.47 per cent of Australia’s total imports.

• Australia’s rolling annual trade surplus with China fell from $71.90 billion to $71.23 billion in May.

• Australia exported a record $17.636 billion to the US in the year to May and imported $36.534 billion.

• Australia exported $14.8 billion to the UK in the year to May and imported $7.063 billion.

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 investors?

• The pick-up in Chinese manufacturing activity is good news for Aussie commodity exporters. In fact, shipments to China continued to increase in May. But political tensions between the two countries are making it increasingly difficult for China-facing businesses. Barley and meat exports – both subject to Chinese tariffs and import embargoes – have eased but are holding up for now. But demand for coal has certainly weakened.

• While Aussie exports to New Zealand and the US also continue to grow, the Aussie government is turning its attention to Britain and India for bilateral trade deals. Exports to the UK, in particular, have been growing this year and hit record highs of $16.1 billion in March. Negotiations over a Free Trade Agreement between the UK and Australian government commenced last month. Who knows, perhaps we’ll start importing Range Rovers again after the recession?

Published by Ryan Felsman, Senior Economist, CommSec