Aussie trade deficit blew back out in February

Aussie trade deficit blew back out in February

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Australia’s trade balance remained in deficit for the tenth straight month in February, widening significantly to A$1.9 billion (J.P. Morgan and consensus -A$1.34 billion) from a downwardly revised A$1.1 billion in the previous month. Stronger imports largely were responsible for the deterioration in the balance, though the volatile non-monetary gold component, as well as downside surprises in exports of coal, also played a role in pushing the deficit out further than expected.

Imports grew 2%m/m in February, as suggested by the preliminary goods imports data. Consumption goods jumped a solid 5% over the month, owing to a large contribution from non-industrial transport equipment (up 16%). On the other hand, the remaining components of ‘traditional’ consumption expenditure (e.g. imports of textiles, clothing and footwear, and toys, books, and leisure goods) essentially were flat over the month. Given that such imports were so strong in January (imports of textiles in particular skyrocketed 30%m/m), this pattern reflects the volatility in the retail sales numbers registered thus far in 2010: retail sales jumped 1.2%m/m in January, then slumped 1.4% in February, with discretionary sales particularly weak. Imports of capital goods were also stronger in February (up 2%m/m), due to greater imports of machinery and industrial equipment (up 23%) and industrial equipment n.e.s. (up 18%). While robust import growth (in %m/m and %oya terms) continues to put upward pressure on the trade deficit, imports remain substantially below the boom levels of 2008.

Exports declined 1%m/m in February. In the breakdown, rural exports improved, after a setback in the previous month, rising 2%, and the non-rural category was essentially flat, with weakness in coal offset by ‘other mineral fuels’, which rose 10%. Indeed, the majority of the weakness in goods exports stemmed from non-monetary gold (down 28%, while imports were up 33%), and lower coal exports.

Preliminary data from selected ports had shown coal exports to be substantially weaker in February than in recent months. This, though, is characteristic for the month of February, and the decline appeared moderate on a historical basis. On the basis of this ‘low bar’, we had expected that, after the ABS’ seasonal adjustment, exports of coal would show a modest increase. It appears that this was not the case in February, and that the widely reported effects of flooding in Queensland had indeed slowed production substantially. On producers’ estimates, however, output will be back to capacity by the end of the first quarter, so today’s weaker coal export number sets us up for a substantial gain in March.

ENDS

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