Travel exports hit 6½-year low; Record exports to US & China; Home building stimulus boost
International trade; Government stimulus
Foreign trade: The trade surplus eased to $8.8 billion in April (consensus: $7.5 billion surplus) from a record high of $10.4 billion in March (previously: $10.602 billion). The rolling annual surplus was a record high $76.1 billion in the year to April, up from $71.8 billion in March.
Travel exports including tourism, education and passenger transport – fell by 18.1 per cent to a 6½-year low of $3.3 billion in April. And international travel by Aussies plunged to $49 million in April – down 99 per cent from the end of 2019.
Record trade: Australia’s annual exports to China were at new record highs of $150.6 billion in April with annual exports to the US at a record $16.6 billion.
HomeBuilder stimulus package: The Federal Government has announced a $688 million ‘HomeBuilder’ stimulus package which will offer one-off $25,000 cash payments to eligible owner-occupiers and first home buyers from July 4 to December 31, 2020 to entice investment in the sector. Federal Treasurer Josh Frydenberg said, “with dwelling investment expected to decline by around 20 per cent through the June Quarter, the HomeBuilder program will support residential construction activity and jobs across the industry at a time when the economy and the sector needs it most.”
The trade data is instructive on income flows in the economy and consumer and business activity.
What does it all mean?
• Australia posted its 28th successive trade surplus in April. Australia’s annual exports to China and the US both hit record highs. With China’s economy re-opening and infrastructure-related stimulus providing support, demand for Australia’s largest export – iron ore – remains strong. Iron ore exports may have eased a little in April, but more recent data from Global Ports shows that Aussie shipments of iron ore totalled 79.7 million tonnes in May – the highest total this year. Of course, Brazil’s virus-related supply issues are part of the story too, but Aussie iron ore producers and the Western Australian government are enjoying a strong run of iron ore prices, boosting their coffers.
• But it wasn’t all good news. Both exports and imports were down in April, with services sector trade adversely impacted by the closure of Australia’s borders. Travel exports – including tourism, education and passenger transport – fell by 18.1 per cent to a 6½-year low of $3.3 billion in April. The weakness in imports – down 18.5 per cent over the past year – reflects weak consumer and business demand due to the economic contraction. And international travel by Aussies plunged to $49 million in April – down 99 per cent from the end of 2019!
What do the figures show?
International trade – April
• The trade surplus eased to $8.8 billion in April (consensus: $7.5 billion surplus) from a record high $10.446 billion in March (previously: $10.602 billion). The rolling annual surplus was a record high $76.125 billion in the year to April, up from $71.806 billion in March.
• Exports of goods and services fell by 11.3 per cent (exports of goods fell by 10.9 per cent).
• Imports of goods and services fell by 9.8 per cent (goods imports fell by 1.3 per cent).
• Rural exports rose by 0.9 per cent. Exports of non-rural goods fell 8 per cent. Gold exports declined 47.4 per cent after lifting by 224.9 per cent in March.
• Major moves: Metal ores and minerals, down $1,003 million (down 9 per cent); other manufactures, down $338 million (down 16 per cent); other mineral fuels, down $216 million (down 4 per cent); coal, coke and briquettes, down $198 million (down 4 per cent); but cereal grains and cereal preparations, up $71 million (up 13 per cent).
• Within imports, consumer imports rose by 4 per cent, capital goods imports lifted 4.3 per cent, but intermediate goods imports fell by 4.9 per cent.
• Services exports fell by 13.2 per cent and services imports plunged 42.5 per cent in April.
• A record net services surplus of $2.313 billion was posted in April.
• Australia’s annual exports to China rose from $149.84 billion to a record high $150.58 billion in April. Exports to China are up 18.7 per cent on a year ago. Exports to China account for 38.45 per cent of Australia’s total exports.
• Australia’s annual imports from China lifted from $77.06 billion in March to $78.20 billion in April. Annual imports were up by 0.4 per cent on a year ago. Imports from China still accounted for 25.77 per cent of Australia’s total imports – just shy of record highs.
• Australia’s rolling annual trade surplus with China rose from $72.78 billion to a record $72.38 billion in April.
• Australia exported a record $16.613 billion to the US in the year to April and imported $37.298 billion.
Federal Government ‘HomeBuilder’ package
• The Federal Government has announced a $688 million ‘HomeBuilder’ stimulus package which will offer one-off $25,000 cash payments to eligible owner-occupiers and first home buyers from July 4 to December 31, 2020 to entice investment in the sector. The government anticipates the package will support 140,000 direct construction jobs and a million workers in the wider residential building sector with around 27,500 people expected to take up the offer.
• The key elements of the package:
• To qualify, owner-occupiers must apply as individuals; be an Australian citizen aged 18; and earn under $125,000 (couples under $200,000);
• $25,000 grants are to be paid to eligible individuals who enter into building contracts between June 4 and December 31, 2020 – work must commence within three months of the contract date – with 30,000 homes aimed to be built by year end;
• Building a new home as a principal residence valued up to $750,000, including land value;
• For renovations of existing homes as a principal place of residence, with renovations valued between $150,000 and $750,000 and the home must be valued less than $1.5 million before renovations are commenced.
• In terms of restrictions, renovations cannot be used for swimming pools, tennis courts, outdoor spas and saunas, detached sheds, ‘granny’ flats or garages.
• Investment properties are ineligible.
• Grants will be paid via the states once each jurisdiction signs up.
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 announcement of a homebuilding stimulus package is a ‘shot in the arm’ for Aussie tradies, builders and construction workers doing it tough due to the pandemic crisis. The Housing Industry Association (HIA) estimates “the package could generate over $15 billion in national economic activity.” And Master Builders Australia said “we think the scheme will be used for $10 billion in building activity, supporting the viability of 368,000 small builders and tradies – the businesses which employ 800,000 people.”
• The stimulus coincides with a prolonged multi-year downturn in residential construction. COVID-19 restrictions, rising unemployment, moderating home prices and a decline in inbound overseas migration will likely result in a continued fall in dwelling commencements in 2020. In fact, with the government estimating that population growth is expected to fall to around 185,000 people in 2020/21, demand for new housing is forecast by CBA Group economists to fall to 90,000 with new residential dwelling starts dropping by 9 per cent. Total dwelling commencements are expected to fall from around 174,000 in 2019 to 134,000 in 2020.
• Critics of the new scheme will point out that the package excludes the construction of much needed social housing for lower income Australians. While others will highlight Sydney and Melbourne’s elevated median home prices, meaning that many people will be ineligible from the grants capped at home values of $1.5 million or less.
• Aussie exporters will have noticed that the Aussie dollar touched US70 cents in recent days, having hit a near 18-year low of US55 cents at the height of the virus outbreak in mid-March, up around 27 per cent from the lows. Infrastructure stimulus in China has pushed the iron ore price above US$100 per a tonne with the global economic re-opening also boosting demand for the Aussie dollar – considered a risk proxy. But a strengthening currency is not good news for Australia’s struggling economy and it will impose costs on exporters. The Reserve Bank may need to ‘jawbone’ it lower in its commentary in the coming weeks if the strength persists.
Published by Ryan Felsman, Senior Economist, CommSec