Australia | Aug 05 2009
By Chris Shaw
Market consensus had been for Australia to record a trade deficit for June in the order of $800 million, so today’s result of a $441 million deficit was clearly better than expected and a big improvement on the $737 million deficit recorded in May.
Westpac, which had been forecasting a deficit of $500 million, notes the outcome reflected resilient export volumes as these were enough to offset price falls in items such as bulk commodities, though as Commonwealth Bank senior economist Michael Workman notes, these lower prices will continue to feed through in coming months. On the other side, imports were a little higher than expected, driven by strong consumption goods numbers. Overall, exports rose 1.5% and imports fell by 0.1%.
ANZ economist Dr Alex Joiner suggests this consumption goods outcome may reflect retailers taking the view the strong volumes seen in the second quarter will continue, while he points out the overall decrease in imports of just 0.1% is somewhat misleading as a large fall in imports of other goods, down 50%, masked some solid growth in other sectors.
According to Joiner, the fact most of the falls in bulk commodity prices are now factored in means the deficit is likely to remain fairly well entrenched for the rest of this year and may in fact worsen before it gets better. This reflects the potential for the Australian economy to perform better than many overseas economies in coming months, meaning imports may increase before demand for Australian exports picks up.
Westpac sees some implications for economic growth from today’s outcome as it had based its recent revision to the GDP forecast for the June quarter on rising exports, estimating net exports would add 0.3 percentage points to GDP rather than subtract that amount as previously forecast. With the export data coming in stronger than it had expected, Westpac now sees upside risk to its GDP estimate.
Joiner points out the June quarter trade deficit is now expected to be around $1.7 billion, well down on the March quarter surplus of $4.2 billion. In his view, the combination of the 1.9% fall in goods imports volumes for the quarter and yesterday’s stronger than expected retail sales volumes outcome is further indication Australian economic growth was positive in the second quarter.
CBA’s Workman estimates June quarter GDP will come in at an increase of 0.3%, though in contrast to Westpac, he estimates net exports will likely detract about 0.3 percentage points from the figure. He suggests such an outcome would still be a reasonable one given it follows the 2.2% positive contribution recorded in the March quarter.