Australia's current account surplus narrowed from $15.5bn ($A) in the March quarter to $7.7bn in the June quarter (estimated at around 1.2% of nominal GDP), a slightly larger decline than expected ($8bn). The narrowing was driven by falling commodity prices, hitting national income by around 8% in the quarter. Nonetheless - but for one quarter in 2022 - the nation has run a current account surplus for the past 4 years, a period without precedent for Australia. The topline detail for net exports was strong, with the ABS reporting an expected contribution of +0.8ppt to Q2 GDP, well above expectations for +0.3ppt.
The current account surplus narrowed by $4.8bn to $7.7bn in the June quarter. The drivers were the trade surplus contracting by $8bn in the period (to $31.4bn), with the income deficit improving by $3.2bn (to -$23.4bn) as returns from offshore investments lifted (3.7%).
The value of the nation's exports has eased from record highs, declining by 4.2% in the quarter, weighing on the trade surplus. That movement was driven by an 8.2% decline in export prices, reflecting a retracement in commodity prices. Underlying export volumes advanced 4.3% in the quarter. Import values lifted 0.4%q/q, on a combination of softer prices (-0.2%) and a modest lift in volumes (0.7%).
What this all means is that national income took a large hit during the June quarter - the terms of trade fell by 7.9%q/q, its sharpest quarterly decline in 14 years - but international trade actually added substantially to economic growth, due to export volumes (4.3%) far outpacing import volumes (0.4%).
The contribution to GDP growth coming through from net exports in Q2 will be 0.8ppt, helping to attenuate very weak business indicators data yesterday.
The ongoing recovery in the domestic services sector, notably tourism and education, on reopened borders continued to drive exports. Services exports were up a further 12.5%q/q and have been the major contributor to export growth over the past year. Other notable dynamics were: strong offshore demand driving rural exports (0.9%) to a record high in Q2; meanwhile, commodity exports lifted by 2.4%q/q, as shipments rebounded from disruptions in Q1.
Import volumes were soft in Q2 (0.7%), slowing to a pace of 4.4% through the year from 5.7%. Slowing imports reflect the backdrop of weakening domestic demand; however, this has centered in goods (0.7%Y/Y) as services post-pandemic remain elevated (22.9%Y/Y). Key dynamics in Q2 were: consumption goods (-1.1%) and capital goods (-3.3%) falling on weak demand; by contrast, continued resilience was seen in services (4.7%), bolstered by overseas travel to the northern hemisphere as the Australian winter approached.
