Australia's trade surplus narrowed to $7.5bn in February as import spending accelerated and export earnings were broadly flat. A rewidening of the trade surplus looks likely with prices of the nation's key commodity exports elevating following the Ukraine war.
International Trade — February | By the numbers
- Australia's trade surplus retraced to $7.5bn in February from $11.8bn in January (revised from $12.9bn); markets had expected the surplus to narrow to $11.7bn.
- Exports edged up slightly (0.2%) to a new record high at $48.8bn (22.3%) following January's 6.1% surge.
- Imports accelerated by 12.1% in the month to $41.3bn (32.6%yr) after declining in January (-2%m/m).
International Trade — February | The details
Strong domestic demand conditions and rising prices for many of the goods Australia buys into the country led to a surge in import spending in February (12.1%). Exports were little changed (0.2%) but set a new record high at $48.8bn. Overall, this saw the trade surplus narrow sharply from January, though at $7.5bn it is still at a very elevated level. With the spillover effects from the Ukraine war pushing up the prices of major Australian exports, the trade surplus is set to widen again.
Total spending on imports accelerated by 12.1% in February, surging to a new record high in the process at a little over $41bn. As the summary table above shows, spending on all categories lifted in the month, but the main contributors were consumption goods (16.5%) and intermediate goods (16.9%).
February's release reported very strong increases across the full range of consumption goods, broadly reflective of the state of household demand that has been supported by a robust labour market and a large pool of accumulated savings. Month-on-month gains of more than 20% were seen in household electrical items, clothing and footwear and non-industrial transport equipment (mainly cars). While there is an inflation component to these rises to consider, Australian household demand is also very strong.
The surge in spending on intermediate goods came mainly from processed industrial supplies (28.5%m/m) and fuel (18%m/m), with rising prices likely to have been a major factor. This is ahead of the full impact of the acceleration in petrol prices following Russia's invasion of Ukraine. The war and the recent lockdowns in China have led to further disruptions to global supply chains and will add upward pressure to input prices.
Australia's export income is running at record highs underpinned by elevated commodity prices, with more upside to come following the Ukraine war. Non-rural goods fell in February (-1.1%) but will be boosted by higher energy and iron ore prices. Rural goods (3.2%) are set to keep rising on the back of demand for Australian grain (of which Ukraine and Russia are major exporters).
International Trade — February | Insights
The 9% surge in the Australian dollar (trade-weighted index) since the start of February reflects the expectation that the spillover effects from the Ukraine war will be a positive shock for the nation's terms of trade. Higher commodity prices will drive up export earnings and support a rewidening in the trade surplus. The stronger Australian dollar will help to attenuate some of the impact of higher import prices.
RBA chart