Aussie trade balance deteriorated further

Aussie trade balance deteriorated further in December

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Australian imports exceeded exports for a ninth consecutive month in December, with the trade deficit continuing to widen. The deficit expanded to A$2.3 billion from an upwardly revised A$1.7 billion in November. The surge in imports was the main culprit behind the deterioration in the trade balance, though the result was slightly more benign than the market had expected (J.P. Morgan –A$1.5 billion, consensus –A$2.5 billion).

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Imports rose 6%m/m in December. Goods and services debits were up 6% over the month. The consumption goods category fell modestly (down 1%), owing to weaker imports of textiles, clothing and footwear (down 12%), and toys, books and leisure goods (down 7%). At this stage, it is difficult to tell whether the implied disappointing read on consumer demand will translate into a December hangover for retail sales, after November’s remarkably strong retail result, or whether the slowdown in seasonally adjusted imports was due to opportunistic pre-purchasing by retailers earlier in the quarter taking advantage of elevated AUD.

Capital goods imports rose 7%m/m in December, with the main contributor being the rise in capital goods n.e.s. Imports of machinery and industrial equipment plummeted 10%m/m, however. The ABS noted in today’s release that import volumes increased 7% over the December quarter, fuelled by a 5% decline in prices.

Exports strengthened across all of the major categories in December, pushing up total credits by 4%m/m. The rural goods category increased by 7%m/m, while non-rural goods, up 5%, were bolstered by a significant recovery in commodity demand. Coal, coke and briquettes rose 10%m/m, metals (ex-monetary gold) were up 25%, and exports of other mineral fuels rose 13%. The recovery in the non-rural goods category over the month squares well with shipping data from selected ports over December, which showed an increase in coal export shipments of 21% over the month.

Over the fourth quarter, the trade deficit widened by nearly A$2 billion, after applying the seasonal adjustment factors used in the compilation of the balance of payments. While this certainly will result in a negative trade contribution to GDP, over the medium term the outlook is more positive. Australia’s attachment to the growth engine of China, combined with that country’s recent metamorphosis into a net coal importer, will continue to support export volumes.

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ENDS