Australia’s trade deficit likely to have narrowed in July

Australia’s trade deficit is likely to have narrowed in July after widening for two months. The deficit is expected to have declined as imports are likely to have shrunk while exports are anticipated to have rebounded from their June decline, said Societe Generale in a research note.

Weakness in exports in June was not unexpected as correction in exports of gold appeared inevitable. The AUD 270 million drop in gold exports explained the decline in overall exports of AUD 213 million. The trend in gold exports had remained flat since around 2008. Therefore the surge in March, and to a lesser extent April, always seemed likely to be reversed, stated Societe Generale.

Significantly, the continued ramp-up in LNG production and export capacity is expected to have made itself felt, while prices of iron ore also increased robustly by 9 percent in AUD terms in July. On the import front, the sharp increase of 10 percent in capital goods imports in May and June appears at odds with the fall in overall investment. The 6.5 percent rise in consumer goods in the same period also appears quite strong in light of moderate growth in consumption.

“We expect both to be at least partially reversed, and reduce imports by some 1%”, added Societe Generale.