Current account deficit narrows sharply but exports continue to drag on GDP
Updated
Australia's current account deficit has narrowed sharply thanks to surging coal and iron ore prices.
In seasonally adjusted terms, the September-quarter current account deficit fell by 29 per cent to $11.4 billion.
While the value of goods and services exports rose by 4 per cent — or $2.9 billion — over the quarter and imports were up only $162 million, the Australian Bureau of Statistics said in volume terms, imports outpaced exports and would chisel another 0.2 percentage points off tomorrow's GDP number.
Australia's terms of trade — the ratio of export prices to import prices and measure of a nation's purchasing power and wealth — continued to strengthen, rising 4.5 per cent over the quarter.
The narrowing of the deficit was largely driven by a sudden turnaround in key commodity markets.
The value of coal exports leapt 7 per cent — or $617 million — with volumes and prices up 3 per cent and 5 per cent respectively.
Iron ore shipments fell 2 per cent, but a 6 per cent increase in prices saw the overall value of exports rise 3 per cent, or $584 million.
Volatile gold exports did their bit with higher prices (up 4 per cent) and volumes (up 11 per cent) increasing the value of exports by 12 per cent, or $600 million.
Rural exports rose by 3 per cent, with larger wheat and grain shipments more than offsetting weaker prices.
The ABS noted net foreign debt increased by another $0.8 billion over the quarter to a record $1.05 trillion.
In a separate set of figures published by the ABS, government consumption and investment also fell in the September quarter putting the chances of a positive GDP result under even more pressure.
In seasonally adjusted terms, total government consumption expenditure fell by 0.2 per cent over the quarter, while government investment was down 10.4 per cent compared to the June quarter.
NAB economist Tapas Strickland said both sets of data increased the likelihood of the economy shrinking by around 0.2 per cent over the quarter, dragging annualised GDP down to 2.1 per cent from 3.3 per cent in the June quarter.
"Moreover, risks are tilted to the downside, GDP possibly printing as low as -0.5 per cent quarter-on-quarter pending a possible inventory kick from a bumper grain harvest," Mr Strickland said.
"If a negative print eventuated, it would be the fourth individual negative quarterly print in the past 25 years," Mr Strickland noted.
"With GDP likely lower than forecast, it may prompt the RBA to revise their growth outlook in the new year, which could be the catalyst for markets to start pricing in the chance of the RBA cutting rates," he said.
Markets are currently pricing in a 12 per cent chance the RBA will hike rates in 2017.
Despite the weak batch September quarter data, the RBA is expected to leave rates on hold at its meeting today.
Topics: business-economics-and-finance, economic-trends, globalisation---economy, markets, trade, australia
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