Australian trade surplus weakens

File photo / Mark Mitchell

Australia's trade surplus narrowed more than economists predicted in September as gold shipments abroad dropped faster than a slowdown in fuel imports.

Exports exceeded imports by A$2.56 billion ($3.33 billion), from a revised A$2.95 billion surplus in August, the Bureau of Statistics said yesterday. The median estimate in a Bloomberg News survey of 24 economists was a surplus of A$3 billion.

Australia's trade balance may weaken further as prices decline for iron ore, the nation's most valuable overseas shipment, and global growth slows in response to Europe's sovereign-debt crisis.

Yesterday's report indicated export volumes that were almost flat last quarter may have been a drag on gross domestic product during the period, economists said.

"Net exports look like they're going to detract reasonably significantly from third-quarter growth," said Su-Lin Ong, head of Australian economic and fixed-income strategy at RBC Capital Markets in Sydney. "What was shaping up as a pretty reasonable quarter of growth is now looking a lot softer."

Exports dropped 3 per cent to A$27.3 billion, led by a 24 per cent fall in non-monetary gold and a 7 per cent decline in other mineral fuels that include natural gas.

Imports slid 1 per cent to A$24.8 billion on a 12 per cent drop in fuels and lubricants.

"The problem is going forward we know prices are going to drop a fair way," Ong said, referring to iron ore and coal.

"You may get some recovery in volumes in October but the price component is coming off."

The Reserve Bank of Australia, which lowered interest rates last week for the first time in 31 months, said "some decline" in commodity prices appears to be under way.

RBA Governor Glenn Stevens lowered the overnight cash rate target to 4.5 per cent from 4.75 per cent on November 1, saying after the decision that confidence is "subdued outside the resources sector". Investors are betting Stevens will reduce borrowing costs next month, interbank cash-rate futures showed.

The report also showed imports of consumption goods declined 3 per cent in September, the biggest slide since April, led by a 15 per cent drop in household electrical items. That may reflect a 10 per cent fall in the currency in the month in response to Europe's deepening crisis.

Australia's exports and a A$430 billion pipeline of resource projects helped spur the local currency to $1.1081 on July 27, the highest level since it was floated in 1983.

Europe's fiscal troubles have weighed on the Australian dollar in recent months. The world's fifth most-traded currency fell 10 per cent last quarter on concern Greece would default and trigger a repeat of the 2008 credit freeze.

China is Australia's biggest trading partner and its demand for iron ore, coal and energy has driven the nation's terms of trade, or export prices relative to import prices, to a record.

On November 1, the China Federation of Logistics and Purchasing said a manufacturing index fell in October for the first time in three months.

The central bank said that "recent falls in commodity prices and the slowing in global demand suggest that the peak in the terms of trade has now been reached and indeed the recent significant falls in the price of iron ore suggest that the decline could be happening a little faster than earlier expected".

Separately, a private report yesterday showed business confidence strengthened to a five-month high in October as businesses bet correctly the Reserve Bank would lower rates.

The confidence index improved to 2 last month from minus 1 in September, according to a National Australia Bank survey.

- Bloomberg