It was buried in Tuesday’s welter of reaction to the final report from the banking and finance royal commission, the RBA decision to leave interest rates on hold and downgrade some of its forecasts, weak retail sales for December and the lowest car sales in January since 2012 and the continuing bushfire problems in Tasmania and the flooding and heavy rain in Townsville.
With that background, being ignored was understandable, but if analysts and the media looked at the figures in the December trade report from the Australian Bureau of Statistics they might have spotted a headline or two, instead of ‘just another trade surplus. But the seasonally adjusted surplus for December of more than $3.6 billion was the second largest ever, only topped by the $4.5 billion monster in December 2016.
And if they had checked the data a little further they would have found that Australia notched up a trade surplus in every month of 2018 – the first time every that has been achieved. And if they had looked a little more they would have found that the ABS was telling them that Australian racked up its biggest every calendar year trade surplus as iron ore, coking and thermal coal, services and especially LNG powered exports
The ABS said that in original terms, the balance on goods and services for 2018 was a surplus of $22.2 billion, an increase of $12.7 billion on the surplus of $9.5 billion recorded in 2017, resulting from a 13% $51.1 billion increase in exports of goods and services and a smaller 10% rise in imports of goods and services of $38.4 billion.
That’s the highest calendar year surplus on record and with the continuing strength in the labour market, the reasons why the Reserve Bank is maintaining its optimism about the economy, even though there are falling house prices in Sydney and Melbourne, weakening household consumption (retail sales and cars), softening business conditions and business confidence (according to the monthly surveys from the National Australia Bank).
And as Governor Phil Lowe said in a speech yesterday, the bank is now looking for a 10% drop in dwelling investment over the next two years, which will put a big dint in growth. That means the strength of the jobs market and the trade account loom as two keys to keep growth happening in the Aussie economy.
And the trade performance could improve given the surge in iron ore prices off the back of the latest mine disaster in Brazil at a mine owned by Vale, the world’s biggest iron ore miner. It is cutting production by more tha 40 million tonnes a year as it shuts mines and their associated dams (around 7).
Worse could be coming as a court in the Brazilian state of Minas Gerais (where the disaster happened) has ordered Vale to shut 8 mines in the state, including its second biggest operation, Brucutú. Global iron ore prices are steady at the moment because China is on its annual Lunar New Year holiday so there is little active buying.
Prices jumped more than 14% last week to just over $US85 a tonne, the highest they have been for nearly three years. Analysts at ANZ Bank reckon the price could persist above $US80 a tonne for much of this year.
Of course, all this will be undone if Donald Trump rejects China’s trade offers to end their dispute. But at the moment all those gloom and doom calls about china have failed to happen and the Australian trade performance continues to grow at a record pace.
In the year to December, the monthly value of exports was up 16% to nearly $38 billion, while imports only rose a more sedate 3.6% to $34.3 billion.
The 8% fall in the value of the dollar helped exports more than imports, while a surge in the cost of oil and petrol imports was nearly offset by a subsequent fall. But LNG prices remained high in the year and was a big driver.
