Australia posted another current account surplus in the March quarter, as elevated commodity prices continued to boost national income. Net exports will weigh heavily on Q1 GDP growth as exports were disrupted by adverse weather, while imports regained momentum from recent supply pressures.
- Australia's current account surplus narrowed by $5.7bn to $7.5bn, whereas it was forecast to rise to $13.3bn. The surplus from Q4 was revised up to $13.2bn from $12.7bn.
- The quarterly trade surplus narrowed by $0.9bn to $28.2bn. An 11.9% rise in import spending outpaced an 8.7% lift in export earnings.
- The income deficit widened by $4.9bn with higher returns flowing to foreign investors, coming in at $20bn.
- ABS reports that net exports will deduct 1.7ppts Q1 GDP growth.
Balance of Payments — Q1 | The details
For the 12th consecutive quarter, Australia has posted a surplus on current account. Q1's $7.5bn surplus is down from the elevated peaks seen over the pandemic, now around where it was in March 2020. Compared to Q4, the current account surplus narrowed by $5.7bn, with a widening income deficit the major driver (-$4.9bn) and the remainder coming from a decline in the trade surplus (-$0.9bn).
Turning to quarterly trade volumes (adjusted for price movements), exports contracted by 0.9%q/q to be 4.2% lower over the year. Looking through the large decline in volatile non-monetary gold, the main factors were lower resources (-2.2%) and rural goods (-2%) exports, likely reflecting weakness in production associated with the severe wet weather in the quarter. With border restrictions easing, services exports (2.3%) commenced their recovery.
Imports regained momentum after a weak back half of 2021, hit by lockdowns and supply constraints. Volumes advanced by 8.1% in Q1, to be up by 7.6% through the year. Consumption goods surged by 14.1%, with household electrical goods (30.5%) and non-industrial transport equipment (essentially road vehicles) (32.1%) soaring. This indicates supply issues eased up in the quarter, consistent with the signals in today's Business Indicators data (see here).
Capital goods (5%q/q) rebounded from a sizeable contraction in Q4, turning around on a strong inflow of machinery and industrial equipment (12.5%) that was delayed over the second half of 2021. Intermediate goods were up by around 5% for the second quarter in succession. The key contributor has been processed industrial supplies, up 30.2% over the past two quarters, note this category has been boosted by pandemic-related spending on vaccines and R.A.T tests etc. Services imports lifted by 6.8%q/q as overseas travel resumed.
Overall, with export volumes contracting (-0.9%q/q) and imports accelerating (8.1%q/q), the ABS reported net exports will deduct a sizeable 1.7ppts from GDP growth in Q1. While this will be a historically large negative contribution to GDP, it mostly reflects good news in terms of imports regaining momentum as supply constraints eased, helping inventories to be rebuilt. Wet weather weighed on exports, but volumes here will rebound, and in any case export earnings surged due to higher commodity prices.
Balance of Payments — Q1 | Insights
Elevated commodity prices have kept the nation's current account in surplus, to the tune of $7.5bn in the first quarter. The nation's terms of trade were up in the order of 6% in Q1 despite export volumes declining, held back by wet weather. Imports regained momentum and will help to meet robust domestic demand over the course of 2022.
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The ABS also published quarterly Government Finance statistics today. The report confirmed a rebound in public demand after a soft Q4. Public demand lifted by 2.5% in the quarter, with expenditure rising by 2.7% and underlying investment up by 1.6%. Overall, the ABS reports a 0.7ppt contribution to GDP growth came through from public demand in Q1.
