Eco Analysis - Australia: Big trade deficit, but also better exports (K Baader)

Eco Analysis - Australia: Big trade deficit, but also better exports (K Baader)

Australia's October trade figures added another piece of evidence that intra-Asian trade - and arguably global trade - is picking up. Export values rose for the first time in five months, albeit by a mere 0.4% mom, but that is a respectable performance considering that, according to the RBA measure, commodity prices were down 2.2% in October. The rise owed much to a jump in exports to China, which surged 20% mom (but caution, not seasonally adjusted), lifting the annual rate to -11% from -25%. This supports the notion that de-stocking in China has come to an end. Meanwhile, imports into Australia surged, led by capital goods, indicating that strong investment activity extended into Q4.

Although Australia's trade deficit hit a four-and-a-half year high at A$2.1bn, up from a 1.4bn deficit in September, there were some encouraging signs in the data. First, as mentioned it was the first increase in export values in five months. Second, rural exports surged 5.4% mom to come very close to their all-time peak (just 1.6% short), and although they account for only 11% of total exports, it made a difference to the overall report (helped also by a recovery in prices over the past four months). Third, as mentioned, trade with China rebounded. Fourth, exports of services were flat in October, but up 2.0% on a 3m-o-3m basis, notwithstanding the recent strengthening of the exchange rate which makes Australia a truly expensive holiday destination.

Exports of key non-rural commodities were mixed: metal ores and minerals (which are dominated by iron ore) rose 7.6% or A$416 mn, helped by the recent improvement in iron ore prices, but exports of coal fell 9.2% or A$328mn, as prices remained depressed.

The marked 3.0% mom rise in imports went a long way towards reversing the cumulative 4.4% decline over the previous 4 months, pointing to a revival of domestic demand growth. Judging by the trade data, that revival is driven by investment spending: capital goods imports surged 12.7% mom, reversing most of the declines of the previous four months.

BAADER Klaus
sgresearch.com