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Australia celebrates record trade surplus as exports boom

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December's record trade surplus is good news for corporate profits and the government's triple A rating. But economists expect the impact on the real economy to be muted. 

Economists were shocked on Thursday as the Australian Bureau of Statistics revealed Australia had a $3.51 billion trade surplus in December - well above the forecast $2.2 billion. It is the largest trade surplus for Australia since the data began to be recorded in July 1971. 

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For the December quarter as a whole, the country notched up a surplus of $4.8 billion in a startling turnaround from the previous quarter's $3.8 billion shortfall. Exports jumped 5.3 per cent to a record $32.6 billion, led by 14 per cent month-on-month leap in coal exports and a 10 per cent rise in iron ore exports. Imports edged up only 0.7 per cent.

Australia's export boom is all the more remarkable for occurring "in a world of weak trade growth and rising fears of protectionism",​ wrote HSBC economists Paul Bloxham and Daniel Smith. "We have been writing about this story since September, but it is now very clearly showing up in the official trade numbers."

The bumper trade balance would add between 0.2 per cent and 0.4 per cent to the fourth-quarter GDP growth figures, NAB economist Tapas Strickland said.

"That should eliminate any fears out there that Australia was at risk of recording a 'technical recession' after the weak third-quarter GDP figures." A "technical recession" is when GDP contracts for two quarters in a row - Australia's GDP fell 0.5 per cent in the third quarter of 2016. 

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The trade surplus would sharply shrink the fourth-quarter current account deficit, helping the government maintain Australia's AAA credit rating, CBA chief economist Michael Blythe said.

"The current account deficit is the mirror image of our borrowing from the rest of the world. The implication is that our reliance on the savings of the rest of the world should decline.

"These developments should feed into the debate about the sustainability of Australia's AAA rating in a positive way."

But while analysts expect the export surge to feed through into corporate profits, few saw much impact on the real economy. 

"The export boom is less likely to benefit Australian households this time around," wrote Citi economists Josh Williamson and Paul Brennan. "Current high commodities prices will filter through to households by less than the previous price boom precisely because there isn't the investment and labour market boom in construction and downstream services now."

Partly due to this continuing consumer weakness, Barclay economist Rahul Bajoria expected the Reserve Bank of Australia to keep rates on hold next week.

"The RBA appears comfortably placed after cutting rates twice last year, especially given the more neutral tone of its recent policy statements," he said.

"However, the softness in imports, coupled with a gradual improvement in employment and modest wage growth should add to the RBA's confidence on pursuing a stable monetary policy. Unless there is significant AUD appreciation, we think the central bank's bias will be to keep rates unchanged for some time. That said, given underlying inflation pressure remains low and consumer spending remains soft, we also do not expect the RBA to shift to a tightening." 

A separate report out on Thursday showed approvals to build new homes dipped 1.2 per cent in December, the fourth fall in five months.

The pipeline of work yet to be done is still at record highs and should last longer in this cycle as much more of the construction comprises high-rise apartment towers.

Yet the market is set to cool as the year progresses.

"After housing activity rose consecutively for four years, its longest ever boom, we now think that it has probably already peaked at over 6 per cent of nominal GDP," said George Tharenou, an economist ay UBS.

If right, home building could make little net contribution to economic growth over all of 2017, having added half a per cent age point last year. 

with Reuters