Pete Wargent blogspot

CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Wednesday, 5 April 2017

Another monster surplus?


Australia's international trade balance absolutely smoked market expectations in rising by 138 per cent in February to $3.574 billion, the second highest figure ever recorded (the highest was in December).

This is an extraordinary turnaround by anyone's measure.

As recently as December some economists and commentators were calling a recession risk based on a long string of deficits (the data lags quite significantly), yet now we have seen four consecutive surpluses totalling well over $11 billion cumulatively.

On closer inspection, though, the February result wasn't really quite as rosy as it first appears.

While exports were solid enough, imports fell 5 per cent, which probably reflects weaker consumption patterns.

On the exports side February was a fine month for services exports with a record $6.3 billion in credits, but the commodities picture was a bit more mixed.

A fair rebound in gold exports and the ongoing uptrend in LNG exports were offset by slightly less upbeat performance elsewhere (the commodities figures below are measured in original terms). 

Some resounding positive news is that a surge in Australian tourism continues to pull the trade services balance higher.

Exports on the rise

The value of commodity exports to China has been rebounding.

Smoothing the merchandise exports figures at the state level and on an annual basis we can see that exports from Western Australia have increased by 13 per cent year-on-year on elevated iron ore prices, while in Queensland export values are up 17 per cent as LNG exports ramp up from Gladstone.

Improving trade surpluses are now being notched in these two exporting states.

Look a bit more closely and you will find that towards the end of 2016 imports into the two most populous states began to slow, likely reflecting weaker demand for consumer goods. 

Partly for that reason, while it's undeniably positive to see trade surpluses back on the agenda after a hiatus, it's a qualified positive.

With Cyclone Debbie recently tearing through Queensland there may be a disruption to coal export volumes to take into account in late March, in turn introducing a downside risk to GDP growth forecasts for the March quarter.