Balance of Payments, Government Finance — Q1 | By the numbers
- Australia's current account deficit narrowed sharply by $3.425bn in Q1 to -$A2.9bn. This was in line with the median forecast (prior rev: -$6.325bn from -$7.203bn)
- The trade surplus jumped by $4.753bn to a record high $A13.594bn for Q1 (prior rev: $8.841bn from $8.425bn)
- Net Exports are expected to add 0.2ppt to GDP growth in Q1, in line with the median forecast, which is likely to reverse the -0.2ppt drag from Q4.
- The separate Government Finance release showed growth in underlying public demand lifted by 0.8% in Q1 and 5.4% through the year (prior rev +1.8%q/q and 6.0%Y/Y). The ABS reported that this was collectively expected to add around 0.2ppt to GDP growth in the quarter.
Balance of Payments, Government Finance — Q1 | The details
Firstly, to the balance of payments data, the nation's current account deficit contracted from a downwardly revised -$6.325bn to -$2.9bn -- its lowest since 1997. The key was a sharp jump in the trade balance from $8.841bn to a record-high mark of $13.594bn. Earnings from exports drove this outcome via a 3.7% rise in the quarter to $11.896bn, which was driven mostly by a 12% rise in iron ore prices. Accordingly, the nation's terms of trade lifted in the order of 3.1% in the quarter. Meanwhile, the income deficit widened by 8.1% (or $1.192bn) to $15.984bn with mining profitability (and returns to overseas investors) lifting sharply. In volume terms, exports lifted by 1.0% in Q1 (+1.7%Y/Y), while imports were soft at -0.1% (-0.5%Y/Y). Given exports increased by more than imports, the ABS reported that net trade was anticipated to add 0.2ppt to GDP growth in the quarter.
Firstly, to the balance of payments data, the nation's current account deficit contracted from a downwardly revised -$6.325bn to -$2.9bn -- its lowest since 1997. The key was a sharp jump in the trade balance from $8.841bn to a record-high mark of $13.594bn. Earnings from exports drove this outcome via a 3.7% rise in the quarter to $11.896bn, which was driven mostly by a 12% rise in iron ore prices. Accordingly, the nation's terms of trade lifted in the order of 3.1% in the quarter. Meanwhile, the income deficit widened by 8.1% (or $1.192bn) to $15.984bn with mining profitability (and returns to overseas investors) lifting sharply. In volume terms, exports lifted by 1.0% in Q1 (+1.7%Y/Y), while imports were soft at -0.1% (-0.5%Y/Y). Given exports increased by more than imports, the ABS reported that net trade was anticipated to add 0.2ppt to GDP growth in the quarter.
Secondly, Government finance ex-transfers lifted by 0.8% in Q1 to $113.112bn, with the annual pace still strong at 5.4%, though it eased from 6.0%. This was led by consumption spending that lifted by 0.8% (+5.0%Y/Y), while investment (excluding transfers) lifted by a more modest 0.4% (+6.7%Y/Y). The ABS reported that the combined contribution to GDP growth in Q1 will be around 0.2ppt.
Balance of Payments, Government Finance — Q1 | Insights
Both releases were supportive for growth prospects in Q1. Even though growth in export volumes was not particularly strong, reflecting supply disruptions in the resources sector from adverse weather conditions, that should fade later on in 2019. Despite that, national income will receive a sizeable boost in the quarter from very high iron ore prices in particular. That bolsters the position of the Federal Budget and should support public demand through more spending and infrastructure investment.