Australia's trade surplus widened in March, driven by a softening in import spending as export earnings held around record highs. Sizeable trade surpluses are being driven by surging commodity prices following the war in Ukraine, boosting Australia's terms of trade.
International Trade — March | By the numbers
- Australia's trade surplus increased by more than expected, coming in at $9.3bn in March (vs $8.4bn expected). February's trade surplus was revised to $7.4bn from $7.5bn.
- Exports were flat on the month (-0.1%) to remain around record highs at $49.5bn (25.5%yr).
- Imports softened in March (-4.6%) to $40.1bn (23.9%yr) after accelerating in February (13.4%).
International Trade — March | The details
A fall in import spending saw Australia's trade surplus widen by around $1.9bn in March to $9.3bn. Overall, in the first quarter, the trade surplus was around $29bn, up slightly from Q4 ($28bn) but below the highs seen between Q2 and Q3 of 2021 (from $30-35bn).
Australia's export earnings are at record highs after accelerating by 10.2% over the first quarter. This reflects strong global demand for domestic commodities and surging prices due to the war in Ukraine. Non-rural goods lifted by a modest 1.7% in March but surged by 13.3% over Q1 on the back of metal ores (18.3%q/q) and coal (17.4%q/q).
Earnings from rural goods increased by 5%q/q. Cereal exports were lower in March (-13.1%), but given that both Russia and Ukraine are major wheat exporters, demand for the domestic product is likely to have risen since the war. Services exports (which includes inbound tourism) saw a modest improvement over Q1 (2.2%), with the easing of border restrictions to start supporting the recovery of the sector.
Import spending declined in March (-4.6%) but lifted sharply over Q1 (11.8%) supported by strong domestic demand conditions, with the pick-up also reflecting the impact of higher prices for imported goods. Consumption goods lifted very strongly in Q1 (16.3%) even after seeing a fall in March (-8.4%). All sub-categories saw large rises over Q1, with vehicles (33.1%) and household electrical items (25.5%) the standouts.
Intermediate goods (inputs used within production) saw a 12.6% lift over Q1 to continue their acceleration as supply chain constraints push up prices. Imports of capital goods advanced by 4.8% in the quarter, supported by a pick-up in business investment associated with the economic recovery and government tax incentives. Services imports have commenced their recovery rising by 10.3%q/q as overseas travel restrictions were eased.
International Trade — March | Insights
Data on trade prices published by the ABS last week indicated Australia's terms of trade surged in the order of 12% over the first quarter, with accelerating commodity prices in the wake of the Ukraine war driving up export earnings and boosting national income. Notwithstanding a recent pullback, the Australian dollar has risen sharply since the start of the year, with the higher terms of trade a key driver. Despite higher inflation, a rising Australian dollar and strong domestic demand conditions have supported import spending.