Australia's current account surplus rebounded to elevated levels in the December quarter ($11.8bn) as export income advanced and import spending declined. The ABS reported that net exports will contribute 0.6ppt to GDP growth in Q4 - an above consensus outcome - although this belies weakness in underlying trade volumes.
After narrowing materially through the middle quarters of 2023, the current account surplus rebounded to $11.8bn in the December quarter (around 1.8% of GDP), its highest since Q2 2022. The previous quarter's outcome for the current account was revised to a surplus of $1.3bn from a broadly balanced position of -$0.2bn reported initially. This represents a $10.5bn increase in the current account surplus since Q3, with the key movements being a wider trade surplus ($8.2bn) and a narrower income deficit ($1.9bn).
The rebound in the current account surplus was driven by the terms of trade - the ratio of export prices to import prices - rising by 2.2%, a net income boost for Australia. Export prices rose by 3.1%, largely on the back of a 9.4% surge in iron ore prices, while import prices lifted by 0.8%.
In price-adjusted or volume terms, exports were soft falling 0.3% in the quarter; however, there was a much larger 3.4% fall in imports. The ABS reports that this combination of outcomes will see the trade component adding 0.6ppt to GDP growth in Q4, a reversal of its negative contribution to output in Q3.
For exports, its decline in Q4 was driven by goods (-0.4%), reflecting weaker demand for rural goods (-2.3%) and non-monetary gold (-8.8%). Services exports lifted by 0.5%q/q, indicating the rebound in the domestic tourism and education sectors continued through Q4. Over the past year, all the growth in exports has come from the services sector.
The 3.4% contraction in import volumes reflected weakness in both goods (-2.8%) and services (-5.3%). There were falls in consumption (consumer) goods (-5.4%) and capital goods (associated with business investment) (-3.4%); while quarterly movements can be volatile, growth in year-ended terms is negative for consumption goods (-2.9%) and modest for capital goods (1.6%). These are signs of softness in domestic demand conditions. The fall in services volumes follows a couple of very strong quarters when many Australians were holidaying overseas. However, services imports remain considerably below pre-Covid levels (-24.7%), whereas services exports have recovered above that baseline (3.2%).
