Current account surplus shrinks as Australia’s trade balance weakens

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After holding near a record high in the third quarter of 2021, the current account surplus fell back in December 2021, to $12.7 billion. Most of the decline was due to a deterioration in the trade balance; the goods surplus contracted, while the services position moved into a small deficit for the first time since the March quarter of 2020.

Receipts from goods exports fell, with a 1.1% fall in volumes partly offset by a slight rise in prices. This was driven by a sharp drop (28%) in metal ore (iron) shipments – Chinese production cuts and COVID-related disruptions significantly dampened metal ore imports during this period. Lower iron ore exports were mostly offset by strong gains in grains (reflecting a good harvest in key growing areas), coal and natural gas, all of which saw revenue gains of more than 25% during the quarter.

On the import side of the ledger, volumes fell slightly but values ​​jumped 4.8% q/q. Most of the increase in imports was due to higher fuel prices and the reopening of domestic and international air travel, which supported a 12.3% increase in intermediate goods. Consumer and capital goods volumes fell, but this was offset by strong prices in both categories, reflecting the impact of strong global demand, supply chain disruptions and lower costs. record freight.

The reopening of the international border in November for Australian citizens and residents also showed up in services. The volume of travel services imports, the majority of which is tourism, rebounded 40% in the quarter as locals traveled abroad to reconnect with family and friends. But in absolute terms, these flows are still very low compared to pre-COVID days.

The volatility of the trading environment is clear in the data, but overall net exports will slightly dent (0.2pt) GDP growth in tomorrow’s National Accounts data.

Looking ahead, the recent strength in commodity prices should support a rebound in export earnings, although further disruptions to shipments pose a downside risk to volumes.

The full reopening of the border will also boost exports and imports of travel services, but with strong pent-up demand in the country (especially for travel with family and friends) and a slow recovery in international flows of students and of tourists, it is likely that imports will exceed exports, which will further worsen the balance of services in the short term.

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