The dollar jumped, economists were shocked and the sharemarkets ignored the news that Australia had its largest monthly trade surplus on record December, with the trade balance soaring to a surplus of $3.51 billion, from a surplus of $1.2 billion in November (both seasonally adjusted).
Economists had expected a surplus of $2 billion in the month, but thanks to a 5% rise in exports to $32.6 billion (seasonally adjusted), helped by rising volumes and strong commodity prices the surplus exceeded all expectations. Imports were up just 1% at $28.6 billion.
The Aussie dollar shot up by 0.7% to US76.48¢ on the strong data ad is now 6% higher in 2017 after a 5% rise in January (making it the best performed). The 76.48 US cents was the highest the currency has been in three months. The Bureau of Statistics said that in trend terms (which is supposed to smooth out month to month volatility), the balance on goods and services was a surplus of $2.193 billion in December, an increase of $916 million or 72% on the surplus in November.
In seasonally adjusted terms, the balance on goods and services was a surplus of $3.511 billion in December, an increase of $1.471 billion (72%) on the surplus in November. The December quarter was a sharp turnaround from the previous quarter’s $3.8 billion deficit.
“The sum of seasonally adjusted balances for the three months to December 2016 was a surplus of $4,818m, a turnaround of $8,585m on the deficit of $3,767m for the three months to September 2016,” the ABS noted yesterday.
“However, if seasonal factors used in compiling the quarterly balance of payments are applied, the preliminary December quarter 2016 surplus was $4,866m, a turnaround of $8,416m on the September quarter 2016 deficit of $3,550m,” the Bureau said.
The ABS said in in original terms, the trade balance for all of 2016 was just $13.6 billion, down $23.4 billion (or 63%) on the deficit of $37 billion recorded in 2015. That flowed from a $13.3 billion or 4% rise in exports and a $10.1 billion or 3% dip in imports.
Exports jumped by 5.3 per cent to a record $32.6 billion, led by 14% month-on-month leap in coal exports and a 10% rise in iron ore exports. Imports edged up only 0.7%.
The AMP’s chief economist, Dr Shane Oliver noted that “The move to a large surplus reflects the flow through of the surge in iron ore and coal prices with a further rise likely in January."
"While higher commodity prices explain most of move into a trade surplus, export volumes also look to have increased by around 3% or so. But import volumes also look to have risen such that net exports are likely to have been flat to only slightly positive in the December quarter. Still a big improvement after the September quarter detraction.
"The turnaround in commodity prices signals a large boost to national income which will help Australian economic growth this year (partly offsetting the slowing in housing construction growth). That said, further large gains in bulk commodity prices are unlikely – if anything they may fall back a bit,“ Dr Oliver said.
Indeed there has been a slowing in January, as the Reserve Bank’s Commodity Price Index (yesterday) showed.
Other economists pointed out that the improved trade surpluses will boost company profits, dividend payments, share prices and wages in the mining sector. Higher tax revenue and royalties would flow through to government investment and public sector wages as well.
National Australian Bank markets economist Tapas Strickland said the surplus would add to fourth quarter economic growth, meaning Australia would avoid a technical recession – defined as two consecutive quarters of negative growth – after the 0.5% fall in GDP in the September quarter.
“This contribution and an expected bounce back from the weather-affected third quarter figure suggests a fourth quarter GDP outcome in the order of 1.0 per cent, quarter on quarter, or higher," he said. The fourth quarter GDP figure is due to be released on March 1.
He also said the surplus would help Australia avoid a credit ratings downgrade, after ratings agency Standard and Poor’s said in July that a sharp narrowing of current account deficits and external debt due to favourable export performance could it to change its ratings outlook on Australia negative to stable.
Meanwhile the housing approvals for December from the ABC were not at buoyant. In fact new housing approvals fell to their weakest monthly total in more than two years in December, in a further deepening of the slowdown that started in early 2016.
New dwelling approvals fell 1.2% in December to a seasonally adjusted 17,327, the lowest since the 16,158 approvals in September 2014.
Approvals of detached houses led the fall, dropping 2.2% month on month to 9,279, a three-year low. The number of new apartments, townhouses and semi-detached dwellings approved was little changed from November at 8,049.
For the year to December, total new approvals fell 3.8% from the same time a year earlier to 230,813, the lowest figure since May 2015. The AMP’s Dr Shane Oliver pointed out that while building approvals are well down from their highs as multi-unit approvals, they have now “fallen back to more normal levels."
“There is still a big pipeline of work yet to do, but expect dwelling investment to be flat (albeit at high levels) through the course of this year before falling in 2018,” he said yesterday in a note.
