The fuel price shock stemming from the Middle East conflict has seen Australia's current account deficit deteriorate to decade-long wides at more than 3.5% of GDP in the June quarter. The deficit widened to $27.2bn, slightly better than the $30bn deficit forecast, from $25.4bn in the March quarter (revised from -$27.1bn). The deterioration came as soaring fuel prices due to the closure of the Strait of Hormuz saw import spending accelerate at its fastest pace in over two years (4%). That outpaced a robust rise in export revenue (2.8%), driven by the resources sector. However, once adjusting for price movements, export volumes (0.8%) got the points over imports (0.5%), with net exports to add a modest 0.1ppt to quarterly GDP growth.
The current account deficit widened by $1.8bn over the June quarter to $27.2bn (AUD), around 3.7% of GDP (based on nominal GDP in the March quarter). By that measure, that is the largest deficit in 10 years. This was driven by the underlying trade balance, which deteriorated from a deficit of $2.9bn to $5.1bn - its largest since Q3 2016. The income deficit improved very slightly to $21.9bn. The currency has defied the nation's deteriorating current account to rise in trade weighted terms by nearly 10% since Q1 2023.
Total import spending rose at its fastest pace (4%) since the March quarter of 2024 to $179.6bn (10.9%Y/Y). That incorporated a 3.5% increase in prices, with just a 0.5% lift coming through from underlying volumes. The price uplift relates largely to the impact of higher fuel prices, while EV demand explains the volume increase, with vehicle imports surging by almost 38% to record highs. Data centre-related imports took a step back in Q2 from a very strong Q1.
Export revenue rebounded from a 0.8% fall in the March quarter to rise by 2.8% to $174.5bn (6.3%Y/Y). As with imports, prices were the main driver, up 1.9% in the quarter, with underlying volumes increasing by 0.8%. Higher commodity prices and the resumption of exports following port closures due to adverse weather were the key factors. Resources export volumes increased by 2.5% in the quarter, reversing a 2.4% fall in the March quarter.
Overall, with export volumes up 0.8% in the quarter and outpacing the 0.5% rise in imports, net exports are estimated by the ABS to add a modest 0.1ppt to GDP growth in the June quarter. That follows a 0.8ppt deduction to growth in the March quarter after imports surged, driven by data centre-related equipment purchases. Across the past year, net exports have weighed on growth materially by around 1ppt. Imports have risen by 6.7% while exports are only up 2.9%, the former benefiting from the data centre build out.
