Australia's current account deficit increased to its widest since 2018 at $10.7bn in the June quarter (-1.6% of GDP), exceeding the median estimate for a $5.5bn deficit. Ahead of tomorrow's National Accounts, the ABS reported that net exports will contribute 0.2ppt to quarterly GDP growth, falling well short of expectations for a 0.6ppt add. Meanwhile, a 3.1% slide in the terms of trade weighed on national income in the quarter.
The nation posted its widest current account deficit in 6 years printing at -$10.7bn in the June quarter from -$6.3bn in the March quarter (revised from -$4.9bn). The sizeable current account surpluses that Australia ran between mid-2019 to mid-2023 have given way to increasing deficits alongside the retracement in commodity prices as global growth slowed post the pandemic rebound.
Driving the widening in the current account deficit was the underlying trade balance - the difference between export income and import spending - narrowing from $15.9bn to $12bn in Q2 - the smallest surplus seen since late 2018. Export revenue declined by 2.5% in the latest quarter to $161bn, driven by a 3% fall in prices with export volumes rising a little (0.5%). Import spending dipped modestly (-0.2%) to $149bn in Q2, reflecting a softening in volumes (-0.2%) as prices held steady (0%).
A wider income deficit ($22.5bn from $21.9bn) also contributed to the larger current account deficit in Q2.
With export volumes rising and import volumes falling, both of these movements add to economic growth within GDP calculations; however, the estimate from the ABS was just 0.2ppt compared to the 0.6ppt boost markets were anticipating.
The other main takeaway is that the terms of trade - the ratio of export prices to import prices - recorded a sharp decline in the quarter, due to export prices falling and import prices holding flat - a dynamic that represents a drag on national income during Q2.
Coming back to the details for trade volumes, the 0.5% rise in exports was driven entirely by services (5.6%) with goods contracting (-0.5%). Strength in services is mainly occurring in sectors such as tourism and education. Meanwhile, a fall in resources exports weighed on the goods component. This dynamic of services strength and goods weakness has been playing out since the unwinding of pandemic restrictions. But the rebound in services continues to slow and that has seen export volumes flatline in year-ended terms (0.1%).
Import volumes were a touch lighter in Q2 (-0.2%) but still up 5.2% through the year. In Q2, services imports picked up (0.5%) alongside a rise in overseas travel (1.5%) through the northern hemisphere summer. Goods imports were down 0.4% in the quarter, driven by weakness in capital goods (-2.7%), which aligns with the contraction in equipment investment seen in last week's capex data.
