Pete Wargent blogspot

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

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Saturday, 6 August 2016

Trade deficit widens...growth to slow in Q2

Deficit wider

The 27th consecutive trade deficit widened to $3.2 billion according to the ABS, although this was largely driven by a 2 per cent increase in imports. 

Although the cumulative deficit in the June quarter of $.74 billion was lower than that seen in Q1, net exports look set to subtract from growth in Q2. 

Throw in weak retail trade figures, and GDP growth in the second quarter appears likely to be slim at best. 

Exports fell by 1 per cent in the month of June, largely driven by a 15 per cent decline in the value of gold exports, after a bumper month last time around. The value of iron ore exports also fell in June.

Recent revisions have also made the services exports 'boom' appear less dramatic than previously had been thought, although the trend result has at least kept reaching record highs.

Despite an increase in the volume of exports, low oil prices have to date constrained the benefits of the $200 billion LNG investment boom. 

Looking at the rolling annual value of all merchandise exports, we can see that following sharp declines in iron ore and coal prices, total export values have at last flattened out. 

This is reflected in the value of merchandise exports to China, which have also flattened out after a sharp fall. Although exports to the US picked up, Japan is looking a bit sick here. 

State versus state

Total exports from Western Australia mirror the trends seen above closely, while Queensland is slowly beginning to benefit from its early LNG shipments.

With imports declining, Western Australia's trade balance is rising again, with Queensland the other major state to be in surplus territory. 

Tourism boom

Domestic demand has been weak in Australia of late, but at least some sectors are expanding.

In fact, AIG's sectoral performance indicators are reporting expansion (i.e. a reading of above 50) on each of its indices, including manufacturing (56.4), construction (51.6), and the massive services sector (53.9). 

Yesterday's arrivals and departures figures recorded yet another record in visitors to Australia from Chinese and Hong Kong, and this is reflected in a strong tourism services balance, with services overall improving from a low base. 

The wrap

Overall, a weaker result which points to net exports subtracting from growth in Q2.

It looks as though economic growth in the second quarter will be substantially slower, particularly given stalling retail trade growth.

The Reserve Bank's Statement on Monetary Policy was released yesterday and forecasts soft underlying inflation for the next couple of years, reflecting weak domestic demand, but GDP growth up at 3 to 4 per cent in the year to June 2018, and 3 to 4 per cent in the year to December 2018.