Australian current account deficit widens in Q2 2018, net exports likely contributed modestly to Q2 GDP growth

Australian current deficit widened in the second quarter of 2018, driven by a narrowing in the trade surplus and a widening in the income deficit. Current account deficit widened to AUD 13.5 billion in the June quarter, from a revised estimate of AUD 11.7 billion in the first quarter. This comes to 2.9 percent of the GDP from 2.5 percent in the first quarter.

The increased current account deficit was partly driven by a lower trade surplus that came in at AUD 2.8 billion, compared to a surplus of AUD 3.3 billion in the first quarter. The income deficit also broadened in the second quarter to AUD 1.1 billion – the largest since first quarter of 2017 – from a deficit of AUD 0.1 billion in the first quarter.

Net exports are expected to contribute modestly to second quarter GDP growth, adding 0.1 percentage point to the headline growth, noted ANZ in a research report.

Volumes of exports were up 1.1 percent quarter-on-quarter in the June quarter, driven by a 3.1 percent rise in rural goods. Resource exports were up 0.5 percent quarter-on-quarter and manufactured goods were up 2.1 percent. Service export volumes were up 1.2 percent quarter-on-quarter.

Volumes of import were up 0.4 percent quarter-on-quarter. The strength was seen in capital goods, volumes of which were up 4.4 percent. This came mainly from 20.7 percent surge in industrial transport equipment. Consumption goods were also up by 1.6 percent, with textiles, clothing and footwear rising 7.6 percent. The volume of service imports dropped 3.8 percent quarter-on-quarter. The terms of trade dropped 1.3 percent in the second quarter, still 2.1 percent higher than one year ago, stated ANZ.

At 11:00 GMT the FxWirePro's Hourly Strength Index of Australia Dollar was neutral at 39.5575, while the FxWirePro's Hourly Strength Index of US Dollar was slightly bullish at 71.4896. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex