Trade deficits return; Import growth at 7-year highsInternational trade
Trade deficits return: A trade deficit of $628 million was posted in November, rising from a revised $302 million deficit in October (previously reported as a $105 million surplus). The deficits followed five consecutive surpluses to September and it is the first time since October 2016 that consecutive deficits have been recorded.
Imports surge: Imports during the month of November rose by 1.5 per cent to a record high $32.5 billion. Rolling 12-month imports increased at a 12.2 per cent annual rate in November – a 7-year high.
Record Japanese imports: Imports from Japan hit a record totalling $20.9 billion in the year to November. The trade data has the potential to affect the Aussie dollar so it may be important for exporters.
What does it all mean?
Australia recorded surprise back-to-back trade deficits in October-November for the first time in 12 months. Thesurprise outcome, after previously recording 12 consecutive monthly trade surpluses was largely due to rising imports. Imports rose to a record high of $32.5 billion in November.
Imports surged in November, driven by an uplift in consumer and capital goods (plant, equipment and machinery). The rebound is encouraging and is consistent with the solid re-acceleration in Aussie domestic demand. This week, purchasing managers indexes released from the Commonwealth Bank showed expanding manufacturing and services sector activity in late 2017.
Stronger imports of consumer goods is consistent with the rebound in both retail sales and the Commonwealth Bank’s Business Sales Index. The Aussie dollar was weaker in November, so this may imply that greater job security and interest rate stability, rather than a rising currency, were behind the pick-up in spending on overseas sourced goods.
Business investment and spending on plant and equipment has been strong, contributing to a rise in capital goods imports over the period. Conditions for Aussie businesses are near 20-year highs.
Exports of one of Australia’s key commodities, coal, declined by $98 million in November. China has been favouring a policy of ‘quality’ over ‘quantity’ in recent months in an attempt to clamp down on air pollution choking its major northern cities in the lead up to the northern hemisphere winter.
Exports of gold retraced in November, falling by 22.8 per cent after rising by 24.1 per cent in October. Exports of Aussie gold are volatile.
What do the figures show?
International trade:
A trade deficit of $628 million was posted in November, rising from a revised $302 million deficit (previously reported as a surplus $105 million in October). A trade surplus of $1,169 million was recorded in September. The rolling 12-month surplus fell from a record $19.4 billion to $16.4 billion.
The net services accounts improved from a $261 million deficit to a deficit of $197 million.
Exports of goods and services rose by 0.4 per cent in November (goods were flat). Imports of goods and services were up 1.5 per cent (goods up 1.6 per cent).
Exports are down 0.7 per cent on a year ago, while imports are up 9.4 per cent – the largest increase in 5½-years.
Rural exports rose by 0.6 per cent in the month, non-rural goods rose by 2.1 per cent and gold exports fell by 22.8 per cent. Gold exports had risen by 24.1 per cent in October.
Within imports, consumer imports rose by 2.6 per cent in November with capital goods imports up by 3.1 per cent while intermediate goods imports rose by 0.8 per cent.
Consumption goods imports were up by 8.3 per cent on a year ago while capital goods imports were up 10.6 per cent and intermediate goods imports were up by 11.0 per cent.
Australia’s annual exports to China fell to US$101.16 billion in the year to November from a record high of US$102.11 billion in the year to October. Exports are up 31.2 per cent on a year ago. Exports to China accounted for 33.3 per cent of Australia’s total exports.
Australia’s annual imports from China rose to a record high of $63.0 billion in the year to November, up from $62.2 billion for the year to October. Imports were up by 5.6 per cent on a year ago. Imports from China accounted for 22.0 per cent of Australia’s total imports.
Australia’s rolling annual trade surplus with China fell to $38.2 billion in November, down from a 3-year high of $39.9 billion in October. However, this is still down from the record high of $42.8 billion set in April 2014.
Australia’s imports from Japan reached a record high, totalling $20.9 billion in the year to November.
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?
Back-to-back trade deficits are surprising given decent increases in most of Australia’s commodity and services exports and rising commodity prices amid a strengthening global economic backdrop.
Rising imports may not be a bad thing. While showing spending restraint at department stores, Aussie consumers are shrewdly purchasing goods online from overseas vendors. The Aussie dollar rose by 7.8 per cent in 2017, encouraging consumption on the ‘global supermarket’.
Consecutive trade deficits could result in net exports posting a negative contribution to the December quarter economic growth (GDP) outcome for Australia.
The next inflation print is on January 31. It will be interesting to see whether tradeable (overseas) inflation picksup on rising imports. CommSec expects no change in interest rates until year-end.
Originally published by Ryan Felsman, Senior Economist, CommSec