The trade balance was almost twice as bad as expected, with economists generally forecasting a deficit of about $880 million, after June’s $538 million deficit.
It is the fourth month of deficit in a row, after Australia recorded a surprisingly large surplus of $1.9 billion in March, which helped keep the economy out of technical recession.
However, today’s figures are more a return to situation normal than an anomalous event. The string of trade surpluses that started in August last year, and stretched for 7 of the 8 months to March, represented Australia’s first surpluses since 2002, driven largely by resources contracts signed at the peak of commodity prices last year.
Today’s $1.56 billion dollar deficit is also dwarfed by Australia’s largest trade deficit of $3 billion that was recorded in October 2007.
Helen Kevans, an economist with JP Morgan, says the figure was much bigger than she was expecting, but does tend to be volatile month to month.
“It’s not surprising that we are seeing a lot of strength in imports, consumption goods in particular have been very well supported by the impact of the Government fiscal stimulus package, and we expect that continue for a couple of months but probably fade out throughout the second half of the year,” she said.
Imports rose 4 per cent, and there was no disputing the effect of resilient consumer spending over the first half of the year, which pushed consumption good imports up 2 per cent.
Better-than-expected business investment drove a 5 per cent rise in capital goods imports, however Westpac’s economists note that much of this was accounted for by a large rise in the value of aircraft purchased.
The cost of fuel and lubricant imports surged 21 per cent as international oil prices recovered.
However, Helen Kevans says the export figures were surprising.
“The fall in exports is something unexpected, so we will look for some stabilisation on the export front going forward.”
The fall in exports was broadly based, but among the worst sectors were gold (which slipped 27 per cent) and cereal grain exports (which slid 17 per cent), while the main offsetting factor preventing a bigger decline was a 5 per cent rise in the metal ores and minerals component of exports.
Helen Kevans is broadly optimistic that Australia’s trade balance will stabilise over the coming months as the decline in Government stimulus and possible interest rate rises slow demand for consumption goods.
“I think, going forward, we can expect that the deficit will narrow, exports should soon start to stabilise, given that prices for our key commodity exports are beginning to level out,” she said.
“Imports, on the other hand, will probably ease off a little bit as domestic demand pulls back, we do think domestic demand will soften through the second half of the year as the unemployment rate rises.”
However, Helen Kevans says a rise in interest rates is likely to keep the Australian dollar strong, which will put pressure on exporters and make imports relatively cheaper than locally made goods.
“The strength of the Aussie dollar is a key risk to our export outlook, it will, if it continues to strengthen, weigh on the competitiveness of our exporters.”
The Australian dollar fell 0.2 US cents immediately after the trade data was released, but regained all of those losses by just after midday (AEST).
By Online business reporter Michael Janda