If Australia had a solid quarter of growth in the three months to March, then we will be able to thank the sharp improvement in our trade position which is expected to add 1.0 percentage points to growth in the quarter, according to data from the Australian Bureau of Statistics yesterday.
The ABS reported that "in seasonally adjusted chain volume terms, the surplus on goods and services rose $3,657m (84%) from $4,371m in the December quarter 2012 to $8,028m in the March quarter 2013. This is expected to contribute 1.0 percentage points to growth in the March quarter 2013 volume measure of GDP".
That will be higher than the 0.6 of a percentage point contribution to the December quarter growth of 0.6% (net exports were the second largest contributors to that growth figure in the three months to December).
That will go some way go to offsetting the weak contributions from investment and construction as the resources boom slows to a more normal pace, as will a small improvement in company profits and wages and salaries in the quarter.
A 3.3% fall in real government spending in the quarter will detract 0.8 of a percentage point from GDP, based on yesterday’s government spending data.
The quarter will also see a small positive contribution from a strong quarter of retail sales, especially with big rises in January and February, but which faded in March and April (the ABS releases the March quarter GDP data at 11.30 am today).
The current account improvement and the data on government spending (also out yesterday) didn’t frighten the Reserve Bank board at its meeting yesterday. In fact they would have encouraged it to keep rates on hold, as it did.
But it should be pointed out that the strong export performance won’t be repeated this quarter, if the sharp fall in iron ore prices is any guide, or the weakness in gold and copper prices or lower oil prices.
Global commodity prices started falling in April and the world iron ore price is now well below the level in the March quarter.
In fact the average so far this quarter is around 22% lower on the average for the first three months of the year.
Iron ore volumes are a bit higher and the dollar’s value has dropped by around 7%, but will that be enough to completely offset the fall in prices, which are a major influence on our trade performance and export returns?
And there’s been a region-wide slowing in Asia in economic activity, led by manufacturing, since the end of the March quarter (with the exception of Japan which is being force-fed money to drive the yen lower and lift exports, inflation and growth).
The US economy is helping Japan with exports of cars rising (and they were up 7.6% for May from South Korea as well, as were exports of the new Samsung smartphone which helped push May exports higher from South Korea).
But South Korean manufacturing is still slowing, as it is in India, Taiwan, Thailand and now Indonesia.
China’s slowdown is well documented – all are major export markets for Australia.
If our March quarter national accounts reveal export-led growth for the economy, the question now is, can that be maintained in the face of the slowing pace of activity in Asia?
