Australia's trade surplus narrowed for a second successive month to $11.2bn as it moderates from August's record high. Declining iron ore prices weighed on export earnings while weakness in the domestic economy around the time of the Delta lockdowns saw import spending fall.
International Trade — October | By the numbers
- Australia's trade surplus narrowed by $0.6bn in October to $11.2bn, coming in broadly as expected by markets. The surplus from September was revised down from $12.2bn to $11.8bn.
- Export credits were down 3.3% on the month to $43.1bn (prior: -6.7%m/m), with annual growth slowing to 20.7% from 31.5%.
- Import spending contracted by 2.7%m/m to $31.8bn (prior: -3%m/m) to be up 9.5% over the year (from 16.6%).
International Trade — October | The details
The narrowing in the trade surplus in October was driven by export earnings (-$1.5bn) falling by more than the decline in import spending (-$0.9bn). In percentage terms, exports were down 3.3%mth on the back of a 6.7% fall in September, to be running at 20.7%yr. Imports fell 2.7%mth after contracting by 3% in the month prior but are up 9.5%yr.
The fall in export earnings in October centred on weakness in non-rural goods (-6.7%m/m). This was driven by a 22.5% fall in earnings from iron ore exports following on from declines of 5.4% in August and 17.2% in September as prices for the commodity retrace from elevated levels. However, LNG (8.8%) and coal (13.7%) provided some offset on rising prices. Rural goods advanced by 2.9%mth and are up nearly 60% over the year on strong global demand for Australian wool, cereals and meat. Services exports declined in October (-5.8%) and remain at very low levels due to the restrictions on inbound tourism.
Turning to imports, spending was down on broad-based declines in October. Capital goods were down the most (-7.9%m/m) and may be reflecting the hit to business investment seen during the Delta lockdowns. Consumption goods fell by 1.5%mth on weakness in food and beverage (-6.9%m/m) and household electrical items (-19.4%m/m). Spending on intermediate goods was a touch weaker in October (-0.7%m/m) but the category is up 31.5% over the year. Services imports declined by 1.6%m/m and are around 50% below pre-pandemic levels with overseas tourism prohibited.
International Trade — October| Insights
Net exports added 1ppt to Q3 GDP growth, bolstering the Australian economy against a larger fall in output than the 1.9% contraction posted (see here). With a robust reopening in train, this should be supportive for imports to re-establish their earlier upswing. Meanwhile, demand for Australia's commodity and rural exports remains strong as the global economy continues to recover.