The remaining indicators ahead of tomorrow's September quarter national accounts were released by the ABS this morning. Net exports will subtract 2.0ppts from GDP growth in the quarter, while public demand adds in the order of 0.3ppt. Overall, the Australian economy is likely to have rebounded by around 3.0% in the quarter after contracting by 7.0% in Q2.
Balance of Payments - Government Finance — Q3 | By the numbers- Australia posted its 6th straight quarterly surplus on its current account coming in at $10.024bn in Q3, which was stronger than the consensus estimate of $7.1bn, while Q2's surplus was revised lower to $16.345bn from $17.738bn.
- The surplus on the trade balance narrowed sharply to $13.625bn from $22.340bn as exports pulled back (-6.0%) and imports lifted (2.7%) on the reopening of the economy.
- The income deficit continues to narrow, improving to $3.331bn from $5.591bn.
- Net exports are expected to subtract 2.0ppts from GDP growth in Q3 — more severe than anticipated (-1.7ppts).
- The separately released ABS Government Finance data reported that public demand was expected to add 0.3ppt to Q3 GDP growth, led by consumption spending.
Balance of Payments - Government Finance — Q3 | The details
Australia continues to be a net exporter of capital to the rest of the world as its current account stayed in surplus for a 6th consecutive quarter. This is very unusual in a historical context and reflects the ramp-up in resources production together with favourable price movements for commodities, coming after the unwind of the mining investment upswing that occurred through the early to mid-2010s. The impact of the pandemic has more recently induced significant volatility into the equation.
Australia continues to be a net exporter of capital to the rest of the world as its current account stayed in surplus for a 6th consecutive quarter. This is very unusual in a historical context and reflects the ramp-up in resources production together with favourable price movements for commodities, coming after the unwind of the mining investment upswing that occurred through the early to mid-2010s. The impact of the pandemic has more recently induced significant volatility into the equation.
Highlighting this, the trade balance narrowed by 39% in Q3 to $13.6bn after rising by 24.3% in Q2. In Q2, the pandemic restrictions had an outsized impact on imports (-14.3%) relative to exports (-8.3%). This dynamic flipped in Q3 as the reopening of the economy saw domestic demand coming back, reflected by imports lifting (2.7%), while exports declined (-6.0%) on weakness in the global economy. Adjusting for price movements over the quarter, import volumes rebounded by 6.5% in Q3 (-13.9%Y/Y) as export volumes weakened by 3.2% (-14.9%Y/Y). The ABS advises that the overall impact is that net exports will subtract 2.0ppts from GDP growth in Q3.
The pandemic has very much been a services-related story and today's data highlighted this theme again. Export of services fell another 8.8%q/q (-40.7%Y/Y), with goods also down but modestly in comparison -2.1%q/q (-7.8%Y/Y).
On the import side, goods rebounded by 6.8%q/q (0% Y/Y) on reopening dynamics. Services were up in Q3 (4.4%) but remain heavily lower through the year (-57.1%), with the major influence being the restrictions on offshore travel.
The narrowing in the income deficit from $5.6bn to $3.3bn came as income to domestic investors lifted sharply (14%) due to the strength of the performance of global equity markets, while income to foreign investors was softer over the quarter (-1%).
In the latest Government Finance data for the September quarter, the ABS reported that government consumption spending lifted by 1.4% to $103.79bn, while underlying investment (net of private-public transfers) was up by 2.7%q/q to $25.0bn. Public demand is likely to add around 0.3ppt to GDP growth in Q3 according to the ABS.
Balance of Payments - Government Finance — Q3 | Insights
Net exports will be a larger drag on economic activity than most had factored in, though this will be moderated slightly by increased public spending following the pandemic. But the main story in tomorrow's national accounts is the rebound in household consumption on the reopening of the economy from its Covid-19 shutdown.
