Australia's trade surplus reaches a record high in May

Australia's monthly trade surplus outpaced market expectations by lifting to a new record high in May, reflecting the tailwind from surging export commodity prices. As noted by Reserve Bank of Australia Governor Philip Lowe during a speech on Tuesday night (see here), a rising terms of trade and an expected lift in resources sector investment are factors supporting the domestic economic outlook.

International Trade — May | By the numbers

• The trade surplus accelerated by $925m in May to a new record high of $A5.745bn, which easily surpassed the median forecast for a $5.3bn surplus. April's trade surplus was revised down from $4.871bn to $4.82bn.   
• Export earnings incresed by 3.6% in the month (+$1.442bn) to $A41.585bn to be 16.4% higher over the year (prior rev: +1.6%m/m, +16.4%Y/Y) 
• Spending on imports lifted by 1.5% in May (+$515m) to $A35.839bn, though the annual pace slowed to 2.5% (prior rev: +2.3%m/m, +4.6%Y/Y)

International Trade — May | The details 

Export earnings were up by a robust 3.6% in May (or $1.442bn in AUD terms) to stand 16.4% higher than a year earlier. The key factor has been surging commodity prices, in particular for iron ore, with the tailwind persisting into the second half of the year. In May, earnings from non-rural goods exported lifted by 5.0% in the month (+$1.316bn). That was predominantly due to a 13.0% increase ($1.304bn) from metal ores and minerals (iron ore), with strength in both prices and volumes according to ABS estimates. Coal exports lifted by 3.0% (or $175m) in the month. Earnings growth from the other export categories was contained in May; rural goods +1.1% ($46m), non-monetary gold +1.3% ($22m), while services lifted by 0.7% ($58m).   

   

On the imports side, expenditure increased by 1.5% ($515m) in May, which followed a 2.3% rise in the previous month. Annual growth, however, moderated from 4.6% to 2.5%. Underpinning the aggregate increase, capital goods expenditure lifted by another 5.3% ($348m) following a rise of a similar magnitude in April. Intermediate goods increased by 0.6% ($66m), while consumption goods declined by 0.8% (-$73m). Services imports lifted by 1.3% ($107m) driven by transport and maintenance services.

International Trade — May | Insights

Surging commodity prices will continue to bolster the nation's terms of trade in Q2, following a 3.1% rise in the March quarter. The boost to national income will help to support the domestic economy through an expected increase in resources sector investment over the 2019/20 financial year, and potentially expanded fiscal stimulus and infrastructure investment from the federal government.