Australia’s trade deficit in May widens on rise in imports; likely to narrow next year

In seasonally adjusted terms, Australia’s trade deficit widened AUD 433 million to AUD 2.2 billion in May from April’s upwardly revised deficit of AUD 1.8 billion. Australia’s trade deficit widened after improving for four consecutive months. Deficit in Australia widened due to a huge increase in imports in the month. Imports grew a solid 2.2 percent month-on-month, majorly reflecting solid imports of capital and intermediate goods, which grew 3.8 percent and 4.6 percent respectively on sequential basis.

Since October 2015, imports of capital goods have been on a downward trend, in line with subdued private investment. According to Australian Bureau of Statistics, imports, in seasonally adjusted terms rose to AUD 28,387 million. Imports of intermediate and other merchandise goods increased AUD 385 million, whereas capital goods increased AUD 182 million. Imports of non-monetary gold rose AUD 124 million, while consumption goods dropped AUD 81 million.

Meanwhile, exports continued to grow moderately. It rose 0.7 percent in May. Increase in commodity exports mainly drove the rise in exports. Total exports in May amounted to AUD 26,170 million. Resource exports grew 2.3 percent month-on-month in May, following a decline in April.  Metal ores and minerals’ exports grew 3.6 percent in the month, whereas metals exports, excluding non-monetary gold, grew 6.1 percent.

In May, commodity prices dropped slightly; however, the depreciation in the Australian dollar might have underpinned values. Volumes of export are being underpinned by rising production capacity. According to ABS, rural goods’ exports dropped 2.2 percent in the month, after rising 4.1 percent in April. But exports of services grew for the fourth straight month, rising 0.5 percent. The stable rise in service exports suggests that sectors other than mining are continuing to recover, said St George Economics in a research report.

May’s trade data provided mixed signals. The surprising rise in imports might be a positive sign for domestic demand; however, it is quite early to measure than a sustained recovery in demand is underway. The lower AUD is underpinning both non-mining and resources exports, while production capacity is likely to increase further. Growth in export is likely to surpass than of imports in the near term.

In spite of trade balance deteriorating in May, Australia’s trade deficit is expected to narrow in the next year or so as exports are likely to expand robustly and huge expansion of LNG capacity comes on stream, said ANZ in a research report.