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Trade surplus shrinks to $1b on softer commodity exports

Weaker iron ore and coal exports narrowed Australia’s trade surplus in April.

Key points:

  • The $1bn surplus was in line with expectations, but falling exports point to falling support of second quarter GDP
  • The biggest driver in the 44pc decline in the surplus were softer iron ore and coal exports
  • Imports were flat, although the cost of fuel imports continues to rise

In seasonally adjusted terms, the surplus narrowed 44 per cent from a revised-up $1.7 billion in March to $977 million in April.

The value of exports fell 2 per cent to $34.2 billion, while imports were flat at $33.4 billion.

The big drag on exports were coal, down $400 million or 7 per cent, and iron ore and minerals, down $300 million or 4 per cent.

Always volatile gold exports took their toll too, falling 16 per cent or almost $300 million over the month.

On the positive side of the ledger, LNG exports continued to ramp up both in volume terms (+2 per cent) and price (+1 per cent).

Rural exports were fairly flat, with cereal products retracing the spike in March, but largely offset by an increase in shipments of beef and lamb.

Has GDP growth peaked?

Paul Dales from Capital Economics said while net exports were a big factor behind the strong rise in GDP in the first quarter, April’s data suggests they won’t be as supportive next time around.

“Just one day after the release of the 1 per cent quarter-on-quarter rise in GDP, the evidence suggests that growth may have already peaked,” Mr Dales said.

“It is early days yet, but it looks as though net exports are on track to make a neutral contribution to real GDP growth in the second quarter after having added 0.3 percentage points in the first quarter.

“So while the economy shot out of the blocks at the start of the year, it may already be running out of puff.”

Exports continue to support $A

While data from major coal and iron ore ports show shipments have picked up recently and prices for both commodities are a bit higher, it is unlikely to move the dial much in the short term.

However, the stronger trade performance and the narrowing of Australia’s current account deficit has helped support the Australian dollar against a stronger US currency.

CBA’s Gareth Aird said that trend is likely to continue.

“Demand for Australia’s exports, particularly mining commodities, has kept the Australian dollar trading north of US75 cents for most of 2018,” Mr Aird said.

“We expect that will continue to be the case over the remainder of 2018.”

On the import side of the ledger a rise in capital goods imports — boosted by new aircraft — was largely offset by a drop in consumption goods imports.

While the increase in capital goods supports the view business investment is picking up, the fall in consumption goods does little to allay worries about household spending being a significant drag on the economy.

The other big import item on the move was a 4 per cent rise in fuel, coming on top a 16 per cent rise in March, as higher oil prices continue to flow through to the pump.

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