CANBERRA: Australia’s current deficit has narrowed to $18.1 billion in the September quarter, boosted by a stronger performance by the resources sector. On a seasonally adjusted basis the result is a 12 per cent, or $2.4 billion improvement on the June quarter’s $20.5 billion deficit and is largely in line with market expectations. Overall, exports of goods rose by 6 per cent, or $3.6 billion, outpacing a 5 per cent rise in imports.
Australia’s terms of trade, the ratio of export prices to import prices, fell another 2.4 per cent. Terms of trade is seen as a key measure of national income and the purchasing power of households.
Citi economist Josh Williamson noted the terms of trade were now about one-third of what they were at the 2011 peak, and would probably decline further based on the expectation that iron ore and coal prices have not yet bottomed.
“The Australian dollar will need to fall further to cushion the loss of income if the terms of trade continue to decline,” Mr Williamson said. Resources exports increased by $2 billion over the quarter, with iron ore shipments up 4 per cent to $637 million, and oil and gas up 10 per cent to $508 million.
The surge in resources exports is a reflection of the start-up of major project expansions in recent months as well as a “payback” from the previous quarter’s unexpected fall.
The value of coal and metal exports also increased, despite falling prices. Exports of rural goods fell marginally on lower volumes, with a 6 per cent fall in volumes offset somewhat by a 6 per cent increase in prices. The increase in the balance on goods and services is expected to add 1.5 per cent to September quarter GDP, which will be released tomorrow.
Mr Williamson said the increased contribution from net exports was the largest positive in six years, and more than offset the negative contribution from last week’s disappointing business investment data, although there was little depth to the growth.
“Domestic demand growth is set to print flat or negative and real national income growth could follow suit,” Mr Williamson said. “Furthermore, government consumption was boosted by another increase in Defence spending [last quarter], which cannot continue indefinitely and productivity remains stagnant.”
