This morning's Australian international trade data have come in materially weaker than expected. The nation's current account returned to a broadly balanced position (-$0.2bn) in the September quarter, with large surpluses having been commonplace over recent years, while net exports look to have weighed more heavily on economic growth in Q3 (-0.6ppt) than markets had anticipated (-0.2ppt).
Australia's current account narrowed from a surplus of $7.8bn in the June quarter (1.2% of GDP) to -$0.2bn in the September quarter (vs $3.3bn exp). This movement (-$7.9bn) was primarily driven by the trade surplus declining from $30.8bn to $22.9bn, with export income falling 2.1% ($163.3bn) and import spending rising 3.3% ($140.5bn); the income deficit was little changed at -$22.3bn (from -$22.7bn).
Total income from exports contracted by 2.1% in Q3, reflecting falls in both underlying volume demand (-0.7%) and prices (-1.5%). The fall in volumes was driven solely by non-rural goods (-4.0%) as shipments of resource commodities contracted 4.7% in aggregate (iron ore -3.4%, coal -6.8% and LNG -6.3%). Although iron ore prices advanced (6.9%) there were sizeable falls in the prices received for coal (-9.1%) and LNG (-7.6%) exports. Services export volumes advanced by 1.9% in the quarter - slower than the gains of prior quarters - likely supported by travel associated with the FIFA Women's World Cup.
On the import side, expenditure rose at a 3.3% quarterly pace, with volumes lifting 2.1% and prices rising 1.2%. Volume demand for goods was relatively flat (0.5%) but services surged (8.4%), driven by overseas travel through the back end of the Australian winter. The rise in goods volumes came on the back of capital goods (3.4%) as industrial transport equipment (16.6%) spiked.
Overall, the key takeaways from Q3 are: i) import volumes rose (2.1%) and exports fell (-0.7%), a dynamic estimated by the ABS to deduct 0.6ppt from Q3 GDP, and ii) import prices increased (1.2%) as export prices declined (-1.5%), resulting in the terms of trade falling 2.6% in the quarter, representing a hit to national income.
