Balance of Payments, Government Finance — Q2 | By the numbers
- Australia's current account accelerated into surplus for the first time since 1975 at a record high of $A5.853bn, blitzing the median forecast for +$1.5bn (prior rev: -$1.12bnbn from -$2.9bn)
- The trade surplus surged by $5.06bn to a new record high of $A19.896bn for Q2 (prior rev: $14.836bn from $13.594bn)
- The income deficit narrowed by $1.573bn to -$A13.927bn (prior rev: -$15.5bn from -$15.984bn)
- Net Exports are anticipated to add 0.6ppt to GDP growth in Q2, twice the market forecast for +0.3ppt and up from +0.2ppt in Q1
- The separate Government Finance release showed growth in underlying public demand lifted by 1.5% in Q2 and 5.1% over the year (prior rev +0.8%q/q and 4.0%Y/Y). Overall, the ABS reported public demand was expected to add around 0.4ppt to GDP growth in the quarter.
Balance of Payments, Government Finance — Q2 | The details
Starting with the balance of payments release, the nation's current account is now back in surplus for the first time in 44 years at $5.853bn. Incredibly, the previous highest surplus was $0.277bn back in 1972.
Starting with the balance of payments release, the nation's current account is now back in surplus for the first time in 44 years at $5.853bn. Incredibly, the previous highest surplus was $0.277bn back in 1972.
Driving this result, the trade surplus accelerated by $5.1bn in Q2 to a new record high mark of $19.9bn, while the income deficit narrowed by $1.6bn in the quarter to -$13.9bn. The trade surplus was boosted by a 4% rise in export earnings in the quarter, driven largely driven by a 20% escalation in iron ore prices. The import bill softened by 0.3% in Q2 centred around weakness in consumptions goods, while capital and intermediate goods were also soft. The nation's terms of trade is estimated by the Bureau to have risen by 1.4% in the June quarter. In volume terms, exports lifted by 1.4% in the quarter, though this was driven entirely by non-rural goods (which includes the commodities) to be up by 2.9% over the year. In contrast, imports were down by 1.3% in Q2 and by -2.8% through the year -- its weakest annual pace in nearly 6 years reflecting weak domestic demand conditions. As a result, net exports are likely to add a sizeable 0.6ppt to GDP growth in Q2. The narrowing of the income deficit comes despite surging profitability in the mining sector, in which rising dividends are being repatriated to foreign investors.
Government spending adjusted for asset transfers incresed by 1.5% in Q2 to $113.227bn lifting the annual pace from 4.0% to 5.1%. The details were mixed, with consumption spending rising by 2.7% in the quarter as investment weakened by 3.2%. Overall, the Bureau reported that public demand will contribute in the order of 0.4ppt to Q2 GDP growth.
Balance of Payments, Government Finance — Q2 | Insights
Both net exports and public demand will add notably to GDP growth in the June quarter removing some of the downside risks from households, construction and inventories. Importantly for the Reserve Bank of Australia's growth outlook, strength in resource export volumes was evident in Q2 with iron ore, LNG, coal and metals all rising. However, weakness in imports is consistent with weak domestic demand. Fortunately, strength in commodity prices continues to boost national income, which could open the door for more fiscal stimulus measures from the federal government. Public demand continues to be underpinned by spending in health initiatives, and while investment was weak in Q2 it will continue to support activity over the medium term through transport and electricity-related infrastructure.