Australia's trade surplus narrows to 4½-year low in May

Australia's trade surplus halved in May to $2.2bn, its narrowest since August 2020 - defying expectations to come in at $5bn. The surplus fell from $4.9bn in April, revised down from an initial estimate of $5.4bn. Imports (3.8%) lifted at their fastest pace since last December as exports (-2.7%) declined for the third time in the past 4 months. US-bound exports normalised the month following the Trump administration's liberation day tariff announcements.   

The trade surplus narrowed sharply from $4.9bn in April to $2.2bn in May, its lowest level going back to the early days of the pandemic in August 2020. The narrowing came on the back of a decline in exports (-2.7%) and a rise in imports (3.8%), the latter posting its fastest uplift of the year. Across the past 3 months, the trade surplus averaged $4.4bn. 

Exports were down 2.7% for the month in May coming in at $42.4bn, turning annual growth negative to -1.6% from 2.2% prior. Declines in the month were seen across all major categories: rural goods -3.5%, non-rural goods -2.4% and non-monetary gold -3.4%. Non-rural goods saw their 4th fall of the past 5 months, with LNG (-11.5%) and coal (-2%) driving the weakness in May. Meat (-15.7%) and wool exports (-16.5%) hit the rural goods category.  

After surging to front run the Trump Administration's new tariff regime, exports bound for the US retraced to around $2bn in May having touched as high as $6bn in January.   

Import spending lifted by 3.8% in May, rising through $40bn to a new record high. Annual growth increased from 5.5% to 6.9%. Capital goods were the key driver surging by 8.6% coming off a similar gain in April (8.5%). Meanwhile, consumption goods were up by 3%, underpinned by a strong rise in vehicle imports (7.9%). Intermediate goods (1.8%) rose for the first time in 4 months, with the falling value of fuel imports being a major driver of that weakness.  

Australian dwelling approvals rise 3.2% in May

Australia's dwelling approvals series lifted for the first time since the opening month of 2025 rising by 3.2% in May, a slight miss on consensus for a 4% increase. The gain was led by a 9% surge in the unit or higher-density segment, but that only partly reversed recent weakness. House approvals were broadly flat on the prior month's total. Approvals remain at historically low levels, a legacy of the RBA's earlier tightening cycle and pandemic-related supply constraints in the construction sector.  

Headline dwelling approvals saw a 3.2% lift to 15.2k in May, the first gain in the series in 4 months. This turned the tide somewhat on a run of declines through the past 3 months: February -1.2%, March -7.1% and April -4.1%, and left approvals up 6.5% on a year ago. Nonetheless, approvals are well contained and are more than one-third below their 2021 cycle peak (22.9k). 

In May, higher-density approvals were up 9% to 5.7k. After starting 2025 with a large 15.7% rise, approvals in the segment went onto fall by 30% across the February-April period. This weakness was centred mainly in high-rise approvals in Sydney and Melbourne. Other higher-density approval types (low-rise and townhouses) look to have been holding up against the high-rise weakness. 

House approvals were broadly unchanged in May at a tick over 9.5k, a level 3.2% higher than 12 months ago. Approvals in this segment have remained in a tight range for over a year, showing little sign of breaking to the upside. The RBA's easing cycle - set to continue next week - may be the catalyst required.     

Australian retail sales up 0.2% in May

Australian retail sales rose 0.2% for May, an underwhelming outcome relative to expectations (0.5%) coming off a flat month in April (revised from -0.1%). Sales were driven by the fastest rise in the clothing and footwear category since early last year (2.6%) after households had deferred winter clothing purchases. This offset weakness across other categories, but momentum in retail sales is weak as cautious households remain reluctant to spend. The report adds to the case for the RBA to lower rates next week.     

National retail sales lifted by 0.2% month-on-month in May to $37.3bn, the level up 3.3% on 12 months ago but down from a 3.8% pace last month. Although inflation has eased significantly and the RBA has cut rates twice this year, the higher cost of living and weak sentiment have been keeping households quiet. Sales growth has averaged just 0.1% across the past 3 months.  

At the category level, clothing and footwear sales accelerated by 2.9% in the month - its strongest rise since February 2024 - after warmer weather saw households delaying winter clothing purchases. This had the effect of holding up headline sales growth against outcomes that were either flat or negative in the other categories (see table above). It also led discretionary sales (0.6%) to post their fastest rise in 6 months. But, overall, this was a weak report consistent with households remaining constrained.    

Sales growth across the states has been volatile month to month in 2025, as shown in the chart below. In the two largest states of New South Wales and Victoria, sales were up 0.1% and 0.2% respectively - very modest rebounds in the context of their declines in April (NSW -1% and Victoria -0.4%). Sales in Queensland stabilised (0.1%) from the post-cyclone rebound in April. Meanwhile, sales momentum in Western Australia remains the strongest of all states rising by a further 0.7% in May, their 7th consecutive rise.