Australia's current deficit narrowed slightly from a revised -$16.4bn in Q2 (-$10.7bn earlier reported) to -$14.1bn in the September quarter (vs -$10.8bn expected) but remains at wides going back to 2018. This sees the deficit running at just over 2% GDP, a sharp reversal from 3 years ago when the current account surplus hit a peak of 3.5% of GDP. The driving factor has been the terms of trade rolling over (-2.5%q/q, -4%Y/Y) as commodity prices have retraced from the elevated levels reached as the global economy recovered from the Covid shock. Net exports are estimated to add a modest 0.1ppt to quarterly GDP in tomorrow's National Accounts.
The key movements in the September quarter were the trade balance reducing from a surplus of $6.5bn to $3.3bn, and the income deficit narrowing from $22.8bn to $17.3bn. The difference between the two (allowing for rounding) produces the result at the topline level of the current account deficit narrowing from $16.4bn to $14.1bn, the net outflow of capital from Australia to the rest of the world.
Australia's trade balance - the difference between export revenue and import spending - was a surplus of $3.3bn in the quarter, its narrowest since Q2 2018.
Export revenue fell 2.4% to $156.5bn, a decline of 5.9% over the year. Falling export revenue is largely a story of declining commodity prices, but there are economy-wide effects; national income takes a hit (lowering the tax base), with mining sector profits declining 16%Y/Y according to yesterday's data (see here). In the quarter, export prices were down a further 2.6%, contracting 4.9% year-on-year. Underlying export volumes were up a very modest 0.2% in Q3 - boosted by the strongest rise in resources shipments for more than a year (1.7%) - but down overall by 1.1% on a year ago. Services exports continue to weaken (-3.6%q/q, -5.7%Y/Y) on lower tourist and student arrivals.
On the import side, spending was soft in the quarter (-0.4%) but rose over the year (1.7%) to $153.3bn. The underlying movements are mixed: import prices are easing (-0.1%q/q, -1.0%Y/Y) - declining fuel prices a key factor - while volumes were soft in Q3 (-0.3%) but up across the year (2.7%). At a more granular level, the ABS reported that goods import volumes (-1.5%) were down as oil producing countries responded to oversupply in the market by curbing production; however, services imports picked up (3.0%) led by travel to Europe for the northern summer and Paris Olympics.
Overall, with export volumes up in Q3 (0.2%) and imports declining (-0.3%), net exports will make a positive contribution to GDP growth in the quarter - the ABS estimating a small 0.1ppt addition from this component.
Australia's income deficit remained substantial in Q3 (-$17.3bn) but is well down from the peak in 2022 (-$31.9bn). In the latest quarter, there was a $5.5bn reduction in the deficit; returns to Australian investors in offshore equities advanced as dividends paid to foreign investors in local equities declined - impacted by weaker mining sector profits. Meanwhile, the spillover effects of global bond yields falling as central banks offshore cut interest rates (a move that has later reversed) saw debt interest paid by Australia decline.
