Australia's trade surplus for May came in below expectations at $9.68bn, though this was still the nation's third-highest monthly surplus on record. Growth in export earnings lifted as both iron ore and total rural exports hit record highs. Imports have continued to advance, reflecting the robust momentum in the economic recovery.
International Trade — May | By the numbers
- Australia's monthly trade surplus increased by $1.52bn to $9.68bn in May, though this was short of the median estimate for $10.5bn. April's surplus was revised up to $8.16bn from $8.03bn reported initially.
- Export earnings advanced by 6.1%m/m to $42.23bn (prior +3.3%m/m). With sizeable declines from the initial stages of the pandemic remaining in the 12-month calculation, annual growth accelerated to 23.1% from 8.2%.
- Import spending lifted 2.9% for the month to $32.55bn, reversing the 2.7% fall in the month prior. As with exports, base effects sent annual growth higher to 17.7% from 8.0%.
International Trade — May | The details
Growth in export earnings increased pace in May rising by 6.6% following a 3.3% uplift in April. This brought export credits in May to $42.23bn, its highest level since September 2019. Earnings from both goods (6.3%) and services (4.7%) exports advanced in the month. The increase in the former was driven by a 6.6% rise from non-rural goods, reflecting metal ores and minerals (mainly iron ore) exports rising to record highs at $18bn, equating to 42.6% of total exports in May. Detailed data from the ABS indicated that the increase was supported by both higher iron ore prices and a rebound in volumes after falling in April.
The rural sector has been a major success story for the Australian economy in its recovery from the pandemic shock following drought-breaking rain early last year. Exports from the sector hit a record high in May ($4.5bn) to be up 31% on a year earlier and 53% above the recent trough in July last year. This has been driven by a surge in cereal grain production, with exports up 168% over the year. Exports of wool (102%yr) and other rural goods (17%) have also rebounded strongly.
Non-monetary gold exports lifted by a modest 2.3% for the category in May to $1.82bn. Services exports remain significantly lower than prior to the pandemic due to the border closure, though they lifted by 4.7% in May.
Turning to imports, total expenditure increased by 2.9% to $32.55bn in May, broadly in line with pre-pandemic levels. Imports have rebounded by 17.7% from the depths of the lockdowns last year, reflecting the reopening-driven boost to domestic demand conditions. All categories have contributed to this upswing. Consumption goods lifted by 1% in May to be 28% higher over the year and around 18% above pre-pandemic levels. Notably, imports of passenger vehicles have soared over the past year (139%).
Capital goods advanced another 3.2% for the month, taking annual growth to 17.2%. The rebound in economic conditions, strong business sentiment, tax incentives and accommodative financing conditions have boosted spending on equipment and industrial machinery (22.6%yr). Intermediate goods posted a modest 0.5% rise in the month but are sharply higher over the year (17.7%). This broadly reflects the very strong conditions in surveys of manufacturing activity both in Australia and globally, which was a shift driven by the pandemic through spending patterns rotating away from services into goods. Lastly, services imports were up 4.6% for the month and 15.5% for the year, but this is from a very low base due to spending being crunched by the travel restrictions.
International Trade — May | Insights
The trade surplus for May widened out to $9.68bn, making this the third-highest monthly surplus on record. Export earnings have accelerated on the back of elevated iron ore prices, currently trading above US$200/t on global exchanges despite the US dollar proving stronger than many had anticipated in 2021. This, together with the rebound in the rural sector, is boosting national income. Spending on imports continues to rebound in line with the robust recovery in the domestic economy and has recovered to pre-pandemic levels.
