Australia's Q2 net exports to be considerably less favourable

Australia's trade deficit narrowed to $2.8bn in May, from a revised $4.1bn deficit in April. For the June quarter, the trade deficit could approach $10bn. 

That would be a more than $5bn deterioration on a $4.5bn deficit for the March quarter. That is a sizeable quarter on quarter deterioration and will represent a headwind to growth in the period. 

The terms of trade fell further in Q2, potentially exceeding the 3% fall in Q1. This would continue to squeeze incomes and constrain spending power across the economy. Net exports were a sizeable positive in Q1, adding 0.5ppts to Q1 GDP growth, with export volumes expanding by 5%. 

However, in Q2, net exports will be considerably less favourable, with a potentially broadly neutral impact, says Westpac.