Australia's trade surplus moderates to $4.36bn in February

Australia's monthly trade surplus moderated in February but came in on the high side of estimates. Export earnings were hit by a sharp reduction in services credits in response to government-mandated travel restrictions placed on non-resident arrivals from China following the COVID-19 outbreak, while import spending declined further in line with weak domestic demand conditions and a lower Australian dollar.  

International Trade — February | By the numbers

• Australia's trade surplus declined by $384.0m to $4.361bn in February; above the median estimate of $3.75bn, albeit around a wide range from $2.2bn to 5.2bn indicative of considerable uncertainty in the current climate. January's trade surplus was revised down from $5.21bn to $4.745bn.  
• Export earnings contracted by 4.7% in February (-$1.882bn) to $37.76bn; its steepest month fall (in %age and nominal terms) since April 2017. As a result, the decline in export earnings through the year widened from -1.2% to -6.9% to be contracting at its fastest rate in 4 years. 
• Import spending fell by 4.3% (-$1.498bn) in February to $33.399bn to accelerate the annual decline from -1.5% to -5.6%; its sharpest pace of contraction since September 2016.

 

International Trade — February | The details

Starting on the export side, the 4.7% hit to earnings in February (-$1.882bn) was largely driven by a 9.7% fall (-$846.0m) from the services sector. The main influence was a 14.8% decline in tourism earnings (-$862m) after travel restrictions by the Federal government were implemented on February 2 for non-resident arrivals from China, which was the epicentre of the COVID-19 outbreak. Earnings from goods exports sustained an aggregate fall of 3.4% in the month (-$1.036bn) on broad-based weakness from rural goods (-7.4%), non-rural goods (-1.6%) — driven by a notable 8% slide in iron ore credits on lower shipment volumes — and non-monetary gold (-23.2%). 

After a 2.8% fall in import spending in January, that weakness extended into February (-4.3%), impacted by the headwinds from weak domestic demand conditions and a lower Australian dollar. Spending on imported goods pulled back by 5.5% in the month, which reflected weakness across consumption (-7.8%), capital (-7.0%) and intermediate goods (-2.4%). Service imports only fell by a modest 0.8%, though this comes ahead of significant weakness in March due to offshore travel being greatly dislocated by COVID-19.

International Trade — February | Insights 

A more severe decline in February's trade surplus was expected, though the 4.7% fall in export earnings was to a large degree offset by a 4.3% reduction in import spending. Clearly, COVID-19 will have a much more significant impact on these data going forward due to economic activity being disrupted by more widespread shutdowns, social distancing measures and travel restrictions. Greater insight around these impacts will be available on April 23 with the ABS to publish a preliminary estimate of March's merchadise trade data.