Australia trade deficit narrows significantly in April; net exports to contribute strongly to Q2 GDP

Australia’s April trade deficit contracted significantly to AUD 1.6 billion, as compared with March’s downwardly revised deficit of AUD 2 billion. This was the smallest deficit in 15 months, and the fourth straight month of improvement. This is expected to have been aided by the depreciating AUD, strong growth in export volumes, stabilization in commodity prices and the downturn in mining investment that is keeping a check on imports demand, said St George Economics in a research report.

Australia’s exports rose 0.6% in April, mainly due to increase in rural service and goods exports. Resource exports declined 1.3% m/m. This decline was countered by a rise in non-monetary gold exports and non-resource exports. The former, which are quite volatile, grew 7.9% m/m to AUD 141 million.

Resource exports, excluding non-monetary gold, declined 2.8% m/m, with declines throughout the complex. Metals exports markedly declined 11.3% m/m, whereas exports of coal slumped 2.2% m/m. Meanwhile, export volumes of LNG, iron ore, semi-soft and thermal coal all fell in April.

Services exports grew in April by 1.6% m/m. Rural exports and manufacturing exports climbed 4.7% m/m and 4% respectively. On an annual basis, services exports were up 18.9% and account for 24% of the entire exports. Exports of education and net tourism continued to grow solidly, consistent with robust growth in the number of visitors.

Meanwhile, imports declined in April by 0.8% on a sequential basis, signifying subdued imports of intermediate and capital goods. Import of capital goods dropped 4.6% m/m, in line with the weakness in private investment, whereas imports of consumption goods jumped 0.9%. Imports of services grew 0.2% m/m, likely reflecting a stronger Australian dollar in April.

The considerable rebound in Australia’s trade deficit in the months of March and April implies that net exports is likely to significantly contribute to the GDP growth in the second quarter of 2016, said ANZ in a research report.