Australia has recorded its first trade surplus in almost three years in a sign of economic strength that could help avoid a downgrade to the AAA sovereign credit rating.
A surge in iron ore and coal prices pushed Australia's exports of goods and services $2.3 billion higher than imports in the month of November, a much bigger surplus than economists were expecting and the first since March 2014.
"The stars are finally starting to align for Australia's trade numbers. Up to this point, much of the positive impact on the economy from the boost to export volumes, from newly built capacity, has been offset by declining commodity prices," said HSBC chief economist Paul Bloxham.
In the month of November exports rose by 8.4 per cent while imports of goods and services fell by 0.1 per cent.
Over the past 12 months total exports have grown 15.7 per cent, while imports are down by 2.4 per cent.
The surge in exports is thanks largely to a near doubling in the price, and record shipments, of iron ore and coal. But the weak dollar has also helped industries such as tourism resulting in services exports rising 9.8 per cent in the year.
There is more to good news to come. The Reserve Bank of Australia just reported that Australian export commodity prices surged another 9 percent in the month of December and economists expects trade surpluses to continue until the middle of the year. After that global coal and iron ore prices are expected to fall somewhat as China cuts back on its infrastructure spending.
The boom in commodity exports pleases sovereign credit ratings agencies assessing whether the Australian government deserves a AAA rating because it boosts revenue for state and Federal budgets via corporate and resource taxes.
Michael Workman, senior economist for CBA, said the strong trade surplus was also good news for the AAA rating because it lowers the current account deficit, a figure which credit rating agencies watch closely.
The current account balance, which includes the trade figures plus other cash flows such as dividends and interest payments, is seen as crucial because any deficit must be financed by banks borrowing offshore which creates risks for the whole economy.
CBA now expects a current account deficit of only 1.5 per cent of GDP in the December quarter the lowest since the early 1980s and less in 2017.
HSBC also now expects the current account deficit to narrow from 2.8 per cent of GDP for the whole of 2016 to 0.9 per cent in 2017.
Mr Workman said this "may provide some reassurance to the ratings agencies that also worry about Australia's external balances".
Mr Bloxham said the surge in commodity prices would flow through to higher wages and make it unlikely that in the December quarter the Australian economy would repeat the surprise contraction of 0.5 per cent of GDP seen in September. He said the trade data added to the case for the RBA to keep official interest rates on hold this year.
The Federal mid-year economic and fiscal outlook was based on significant falls in commodity prices next year but this may prove to be overly cautious. Mr Bloxham however said he expected commodity prices to settle above the level at the start of this year.
