Australia's trade surplus widened out to $6.8bn in the month of December, with the export side rebounding sharply in the quarter indicative of improved global economic activity driven by reopenings as commodity prices elevated in response. Import spending remained solid in the quarter on strengthening demand conditions domestically.
International Trade — December | By the numbers
- Australia's trade surplus advanced by $1.77bn in December to $6.785bn, though this was short of the median estimate of $8.75bn. November's trade surplus was revised from $5.022bn to $5.014bn.
- Export earnings increased by 2.8% in the month to $37.268bn extending the 3.3% lift in the month prior, with the decline in annual terms coming in from -11.1% to -7.8%.
- Import spending pared back in December falling 2.4% to $30.483bn: this after surging 9.3% in the month prior, with the contraction over the year widening to -13.1% from -9.8%.
International Trade — December | The details
The $1.77bn rise in the trade surplus in December more than reversed the pullback in the month prior (-$1.52bn) and added to the $0.79bn lift recorded in October. For the December quarter, the trade surplus rebounded sharply by $3.79bn (27.8%) according to the ABS's seasonally adjusted estimates. Overall, the key theme was that the nation's export sector benefitted from reopenings of economies offshore, and with this generating tailwinds for commodity prices, the rebound was further enhanced. Exports earnings lifted by 7.5% in Q4 after Q3's 5.7% fall. Meanwhile, strengthening domestic demand conditions since the reopening in Australia meant that import spending lifted by 3.1% to extend Q3's 3.3% rise.
Looking at December's details, exports lifted by 2.8% to $37.27bn. Driving this was a strong result for rural goods (18.4%mth) with the category seeing a very sharp rebound in Q4 as a whole (18.6%) after falling by 14.7% in Q3. Non-rural goods contributed a 2.2% rise in the month to be up by 7.5% in Q4 rebounding from Q3's 5.9% decline. Driving this was a 3% lift in iron ore exports due to elevated prices, though this impact is much more pronounced when looking at Q4 with earnings surging in the order of 14% for the period. Both non-monetary gold (2.7%) and services (-1.7%) weighed in December—the latter restricted by the closure of Australia's borders to the rest of the world.
Import spending was softer in December (-2.4%) after the surge that came through in November (9.3%) but was solid over Q4 (3.1%) and built on the rebound in Q3 (3.3%) that was generated by the reopening of the Australian economy. Driving the pullback was a 16.1% fall in spending on capital goods, but even factoring this result in the category still increased by 10.5% in Q4. And this followed an 8.1% reopening-driven rebound in Q3. Even on a year-on-year basis, capital goods spending is up by 2.2%, which comes 7 months after crashing to -19.8% at the height of the shutdown. Strengthening domestic demand conditions since the reopening, the expansion in asset write-offs included in last October's Federal budget, and improved business conditions and confidence appear likely factors behind this momentum. Also reflecting reopening effects, pent-up demand and stimulus measures has been consumption goods. This spending was up a further 2.5% for the month in December and was 6.1% higher over the quarter, this was after it rebounded 9.8% in Q3. Intermediate goods posted a 2.2%m/m rise, though it was flat in Q4 (0.4%) and remains well down on a year earlier (-11.1%). Services imports were little changed in December (0.5%) having been crunched by the impact of the pandemic restrictions (-55.7%yr), most notably on overseas travel (-98.3%yr). The effect of this has been to drive a substitution in the mix of spending by Australian households, with spending usually directed towards overseas travel going into consumption goods instead.
International Trade — December | Insights
Today's report was reflective of the ongoing effects of the pandemic, with reopenings across the globe helping Australia's export sector and elevating commidity prices as a result. The import side continued to convey optimism around Australia's recovery with consumption spending going strong and momentum in capital goods investment building nicely.