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Record trade surplus with China
International trade

Foreign trade: The trade surplus fell from a downwardly-revised $4.89 billion in March (previously $4.95 billion) to $4.87 billion in April. Australia has recorded 16 successive monthly trade surpluses. The rolling annual surplus was a record $37.7 billion in the year to April.

Record China trade: Australia’s rolling annual trade surplus with China rose from $46.7 billion in March to a record $48.7 billion in April. Annual exports and imports are also at record highs with the country.

The trade data has the potential to affect the Aussie dollar so it may be important for exporters and importers.

What does it all mean?

• Australia’s external sector is in good shape. A record trade surplus of $5.02 billion was recorded in February. And April marked the 16th consecutive monthly trade surplus. Australia’s current account deficit has narrowed sharply.

• Net exports were a positive contributor to March quarter economic growth and momentum has continued into April. LNG (natural gas) export volumes continue to surge due to strong global demand for cleaner energy sources. And the value of iron ore exports have lifted markedly.

• Rising commodity prices – especially iron ore (futures in Singapore are currently hovering around US$100 a tonne) – are lifting our export earnings and boosting the Federal government’s coffers.

• Certainly Chinese stimulus – focused on infrastructure spending – is one reason for current strength in demand for Aussie resources exports. The other is supply disruptions where the tailings dam tragedy in Brazil and Cyclones in the Pilbara region of Western Australia have both disrupted iron ore volumes, denuding stockpiles.

• But will these dynamics last? Iron ore production will eventually be replenished. And the US and China’s protectionist policies are already hindering global trade volumes. In fact, the World Bank has recently revised down its global economic growth forecast to 2.6 per cent this year, highlighting: “of particular concern is a slowdown in global trade growth to the lowest level since the financial crisis ten years ago.”

What do the figures show?

International trade – April

• The trade surplus fell from a downwardly-revised $4.89 billion in March (previously $4.95 billion) to $4.87 billion in April. Australia has recorded 16 successive monthly trade surpluses.

• The rolling annual surplus was a record $37.7 billion in the year to April.

• Exports of goods and services rose by 2.5 per cent (goods exports rose by 2.9 per cent).

• Imports of goods and services rose by 2.8 per cent (goods imports rose by 3.8 per cent).

• Exports were up by 17.2 per cent on a year ago, while imports were up by 5.4 per cent.

• Rural exports fell by 1.6 per cent. Other rural exports (includes sugar and honey) fell by 5 per cent. But meat exports rose by 2 per cent.

• Exports of non-rural goods rose by 2.7 per cent. Exports of metal ores and minerals rose by 16 per cent.

• Within imports, consumer imports rose by 3.5 per cent, capital goods imports rose by 4.9 per cent and intermediate goods imports rose by 3.9 per cent.

• Consumption goods imports were up by 8.8 per cent on a year ago, capital goods imports rose by 5.3 per cent and intermediate goods imports were up by 5.8 per cent.

• The net services deficit narrowed from $194 million to $124 million in April – the lowest deficit in over two years.

• Australia’s annual exports to China rose from $123.7 billion to $126.6 billion in April – a new record high. Exports to China are up 25.6 per cent on a year ago. Exports to China account for 35.1 per cent of Australia’s total exports – a new record high.

• Australia’s annual imports from China rose from $77.0 billion to a record $77.9 billion in April – a new record high. Annual imports were up by 18.9 per cent on a year ago. Imports from China accounted for 25.3 per cent of Australia’s total imports – a fresh record high.

• Australia’s rolling annual trade surplus with China rose from $46.7 billion in March to a record $48.7 billion in April.

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?

• Australia’s external sector is a bright spot for the economy. We are enjoying an extended run of trade surpluses, boosting our trade income. Demand for Aussie bulk commodities and services remains solid.

• But before we get too comfortable, recent leading indicators of the Chinese economy have lost momentum. The escalating trade war between the US and China is taking its toll on Chinese small and medium sized businesses.

• The ramp-up in US tariffs on Chinese imports, in particular, has weighed on sentiment. China’s official factory gauge is contracting again and business surveys have moderated.

• In a speech in Perth yesterday, the Reserve Bank’s Alexandra Heath said “resource exports are expected to contribute to GDP growth before plateauing at a new, higher level.”

• And in a sign of soft Aussie domestic demand, the rolling annual growth rate of imported goods and services continues to decelerate to around 3 per cent.

• CommSec believes the Reserve Bank could cut interest rates again in August. Additional monetary and fiscal stimulus are both needed to support the economy through the current ‘soft patch’.

Published by Ryan Felsman, Senior Economist (Author), CommSec