Australia | Feb 05 2008
By Chris Shaw
Australia’s trade deficit for December came in better than expected at $1.9 billion but the improvement is unlikely to prove sustainable, ANZ Bank economist Wain Yuen suggesting the lagged impact of the drought and the impact of recent flooding on the mining sector means the trade deficit will continue to be large.
The December outcome was better than market expectations of a $2 billion deficit and an improvement over the $2.2 billion result recorded in November, driven by stronger exports in general and rural exports in particular.
Commonwealth Bank economist Martin Arnold agrees with the ANZ view the trend may again reverse next month given recent poor weather, while TD Securities senior strategist Joshua Williamson points out the feature of the result is the decreased reliance on the US as a trade partner.
Coming to the forefront as the most important trading nations for Australia are China, Japan and Korea, with demand from these countries expected to underpin solid export performance going forward.
What it also means in Williamson’s view is the data won’t impact on the Reserve Bank of Australia’s (RBA) decision with respect to interest rates, as while the US is cutting rates Australia’s major trade partners are either raising rates or holding steady.
Arnold agrees and sees the trade data as having no influence on the RBA’s decision this week with respect to rates, his view being a further hike is in store.