Australia: Trade balance records a deficit in November - Westpac

Simon Murray, Research Analyst at Westpac, notes that in November, Australia's trade deficit widened to $0.6bn with October's result revised lower to a $0.3bn deficit.

Key Quotes

“The result came in well below market expectations for a wider surplus of $0.5bn. Westpac’s forecast was for a flat balance.”

“Export earnings rose but the import bill more than offset the increase. The volatile gold segment was a key driver, having a net -$0.3bn effect on the trade balance.”

“Export earnings rose slightly in November, up 0.4%, $0.14bn, with October’s export estimate being revised lower. Metal ores were up 1% following a significant drop in October relating to adverse price movements in iron ore prices. November’s partial rebound should extend further in coming months with market iron ore prices since moving higher. Coal exports fell 2%, as China’s environmental focus weighed on thermal coal use. Metals (ex gold) are a relatively small proportion of total exports, but its 26% lift made a $0.2bn contribution to export earnings. Gold reversed October’s jump, down $0.4bn, while fuel exports rose 5%, $0.1bn as LNG capacity expands and prices firm. Services exports continued to trend up strongly, up 2% ($0.15bn) with demand from the Asian region boosting travel related services.”

“The import bill rose 1.5%, $0.47bn, surprising to the high side of our forecasts. The increase in the cost of imports in November coincides with a drop in the currency, down 2% against the USD to 0.763 - a similar decline on a TWI basis. Consumption goods rose 3%, $0.2bn, with capital goods also increasing 3%, $0.2bn.”

“Overall, November’s deficit continues to disappoint after a steady run of surpluses through the first three quarters of 2017. Q4’s soft start largely relates to adverse price movements, including a dip in the iron ore price, which since rallied through December. Looking forward, positives remain in the LNG sector as exports lift higher with additional capacity coming on stream and prices firm, while the Asian region continues to be a solid source of demand for services exports.”