Australia’s trade balance remains in the red but the chances of a surplus reappearing in the next few months deficit have risen after the deficit for September fell sharply off the back of the latest commodity price surge.
The Bureau of Statistics said the deficit was $1.23 billion in September, down from $1.89 billion in August and more than $3 billion earlier in the year.
The market had expected a deficit of $1.7 billion in September, but the improvement had no impact on the value of the dollar which traded around 76.6 US cents and edged up to 76.80 this morning in early Asian dealings.
Exports rose 2.0% in the month, while imports fell 1.0%, the Australian Bureau of Statistics reported.
In fact the deficit fell to a 20-month low as the value of exports reached $27.25 billion while imports were $28.48 billion.
Balance of trade narrows
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The recent leap in commodity prices explains most of the sharp narrowing in the trade deficit, have seen our terms of trade rise for two quarters in a row after several years of continuous falls.
Capital Economics economist Paul Dales said yesterday that “if coal prices stay at current levels the deficit could be wiped out in a matter of months, but that’s a very big ‘if’."
Looking ahead, he said that if the recent rises in coal prices are sustained then coal exports could soon rise by a further $1 billion.
“Add in an increase in the value of iron ore exports due to the rise in the iron ore price in October and it is possible that Australia will soon be running a trade surplus for the first time since March 2014,” he was quoted by Fairfax Media.
UBS economist George Tharenou agreed that the spike in coal prices could make the trade deficit disappear in coming months, and also lift annual nominal GDP to about 5%.
"If these prices are sustained, there is an increasing prospect of a trade surplus and even larger boost to nominal GDP, which is a support to the Australian dollar.
"Meanwhile, for third-quarter real GDP, our preliminary estimates imply that net exports volumes are on track to be make a broadly neutral impact on growth, albeit possible ongoing revisions and large export price moves adds considerable uncertainty." But rising prices for sugar, other metals and iron ore have helped improve our trade performance as well as the surge in coal prices.
But economists warn that any surplus is likely to be short-lived as they doesn’t expect the surge in coal prices to be sustained. The rise in coal prices has been faster than the improvement in the Chinese economy and flow from the cuts imposed by the government on production to end loss making mining and try and put a lid on pollution.
The big question is how long the government maintains those cuts before it panics at the way prices are rising and allows production to expand quickly.
It could be soon and is the thing to watch in the news flow out of China.
