Australia | Aug 31 2007
By Chris Shaw
If the market needed further evidence the Australian economy remains on a sound footing despite the recent shakeout in global markets it was delivered today with solid trade deficit, retail trade and private sector credit data.
Retail sales rose 0.9% against an expectation of a 0.6% increase, TD Securities senior strategist Joshua Williamson pointing out while most categories were stronger it was department store sales that led the way. Helping too were recent tax cuts and bonuses, though as Commonwealth Bank (CBA) economist Joseph Capurso notes there may be a slight softening of the number in August given the recent Reserve Bank of Australia (RBA) interest rate hike.
The trade deficit shrunk to $756 million against $1.737 billion in June, CBA senior economist Michael Workman highlighting a 2% increase in exports and 3% fall in imports during the month. In his view the trade deficit will continue to improve, though it is likely to be slow going given the strength in the Australian dollar.
Williamson suggests the figure is an early indicator the Australian economy is recovering from the effects of the drought, as higher farm exports contributed to the narrowing in the deficit.
Private sector credit for the month rose 0.9%, slightly below the market’s expectations of a 1.0% increase. Businesses were the major contributor with a 1.4% increase compared to a 0.6% lift in the household sector.
According to ANZ Bank head of financial systems Paul Braddick the latest gains in finance approvals suggest more strength in coming months, which Williamson suggests will keep the inflation risk skewed to the upside.
In his view today’s data will not have impacted on RBA policy, which will continue to be driven by economic data with a focus on keeping inflation within a target band. The only potential change is if the current global financial market volatility produces enough of an impact to slow the domestic economy, an outcome he doesn’t expect will happen.
With inflationary pressures remaining he expects a further increase in official interest rates in the early part of 2008, a timetable shared by Workman at the CBA.