CANBERRA: Australia trade deficit rose 25 per cent in February as iron ore exports fell due to the Chinese lunar new year. The deficit of $1.26 billion, seasonally adjusted, was roughly in line with typical economist forecasts of $1.3 billion.
Export earnings recorded a 1 per cent increase, with rural product sales up $390 million, gold up $98 million, coal $95 million and fuels $78 million.
However, metal ores were a drag, down $248 million.
The dominant component of the metal ores segment is iron, which was hit by both price falls and also a temporary decline in volumes during February due to disruptions from China’s lunar new year holidays.
Economists expect rising production volumes to contribute to future export figures, although the benchmark Steel Index iron ore spot price index has fallen further since February, yesterday cracking the $US50 a tonne mark for the first time since it was created in late 2008.
The outlook appears bleak as well, with iron ore futures falling for a seventh straight session – the September 2015 contract was at $US61 a tonne.
The weakness in iron ore prices has seen the share prices of Australia’s major iron ore producers fall further on the share market today, with BHP Billiton down around 0.3 per cent, Rio Tinto 1.2 per cent and Fortescue 4 per cent.
According to estimates by Westpac’s economists, it has also lowered Australia’s terms of trade – the prices received for exports versus those paid for imports – even further over the past three months.
“The terms of trade fell in the quarter, down by around 2.5 per cent we estimate,” noted Westpac economist Andrew Hanlan in a note on the data.
The deficit widened as imports rose 1.9 per cent in the quarter, due mainly to a weakening Australian dollar lifting prices.
However, trade’s impact on the gross domestic product (economic growth) data is related to volumes, not prices, so Westpac expects that it will continue to help prop up Australia’s GDP growth.
