Australia's current account surplus rewidened to historic highs in the December quarter. Elevated commodity prices continue to bolster national income. The post-pandemic recovery in services continued at pace for exports but imports lost some momentum.
- Australia's current account rewidened to $14.1bn in Q4 (vs $5.5bn) from a revised $0.8bn in Q3 (-$2.3bn initially reported).
- The trade surplus expanded by $9.5bn in the quarter to $40.9bn. Export earnings lifted by 3% to $177.1bn and import spending declined by 3.1% to $136.1bn.
- The income deficit narrowed from a record wide in Q3 ($30.4bn) to $26.4bn in Q4 as returns to foreign investors declined.
- Net exports are forecast to add 1.1ppts to Q4 GDP.
Balance of Payments — Q4 | The details
Australian exports continued their post-pandemic recovery advancing by a further 1.1% in the December quarter, with the value of those exports rising by 3%. Export volumes are still down by almost 6% on their pre-pandemic level from three years ago.
Services drove export volumes in Q4 (9.8%) and over the past year (46.4%) on the reopening of the international border. Resources exports saw a 2.5% rebound in Q4 (from a 0.9% fall in Q3) but growth over the past year has been modest (2.5%) after being affected by weather-related disruptions. Rural goods (-3.5%) softened after surging through the middle of the year (up 15.9% over Q2 and Q3) as global supply disruptions associated with the war in Ukraine increased demand for Australian produce, particularly wheat.
Import volumes (-4.3%) contracted for the first time in 5 quarters, with the value of imports also falling (-3.1%). This weakness follows a very strong recovery from the pandemic; import volumes in Q4 were 7.7% higher than on the eve of the Covid crisis at the end of 2019. The Q4 decline in imports looks indicative of a softening in demand conditions, which has likely been weighed by higher prices stemming from the pressures that have affected global supply chains. Consumption (-3%) and capital goods (-5.3%) both saw sizeable falls.
Services imports surprised with a 6.5% fall in the quarter, with offshore travel pulling back a touch into year-end (-6.2%). Remarkably, services imports are still almost 30% below their pre-pandemic level; however, they have to a large extent driven the rise in imports over the year.
Balance of Payments — Q4 | Insights
Overall, the ABS reports net exports are likely to add a significant 1.1ppts to quarterly GDP growth. That looks to offset a large decline from inventories (estimated at -0.8ppt).
Broadly speaking, exports are still in recovery mode from the pandemic, while imports may be starting to soften as the headwinds from high inflation and monetary tightening impact; however, the recovery in services imports still has a long way to run.
The current account surplus rebounded strongly in the quarter to sit back at historic highs above 2% of nominal GDP (based on Q3 GDP). The run-up in the current account surplus has followed a surge in the terms of trade to record highs over the course of the pandemic, boosting national income in the process. Despite retracing more recently, commodity prices are still elevated and this remains a tailwind for the Australian economy.
