Federal Treasurer Josh Frydenberg will be rubbing his hands with glee after another outsized trade surplus, courtesy of Australia’s iron ore miners, landed on his doorstep.
- Australia has recorded its 17th successive monthly trade surplus after years of heavy deficits
- The record monthly surplus of $5.7b saw record exports to both trade war combatants, China and the US
- Iron ore led the way, while export growth from LNG, coal and the rural sector were muted
On ABS seasonally adjusted figures, Australia reaped a record trade surplus of $5.75 billion in May, eclipsing the previous high of $5.4 billion racked up in February.
The surplus jumped by an extraordinary 19 per cent from April’s already very healthy $4.8 billion and was well ahead of market expectations.
May’s result makes it 17 successive monthly surpluses, after deficits were recorded virtually every month between early 2012 and October 2016.
Exports jumped 4 per cent to a record $41.6 billion, overpowering a 1 per cent lift in the value of imports.
Iron ore was the standout contributor, with the value of shipments from the West up 13 per cent.
Other key commodities, coal and LNG, recorded more modest monthly growth of 3.2 and 0.2 per cent respectively.
Rural exports were a mixed bag, with cereal and grain shipments up 17 per cent, marginally outstripping an 8 per cent decline in meat exports.
CBA’s Kristina Clifton said only a year ago we considered a $2 billion surplus to be “big”.
“The government sector is a major beneficiary from stronger export receipts as company tax revenues rise,” she said.
“With the budget in good shape but the economy slowing, there is a strong case for looser fiscal policy, including more public sector infrastructure spending.”
GDP is firming
The figures point to even larger surpluses down the track.
Iron ore spot prices only pushed through $US100 a tonne in late May. They have risen more than 20 per cent since then.
“Although much of the upside in nominal iron ore exports relates to the persistent rally in spot prices, throughput data from the major ports indicates that at least part of the recent strength relates to stronger volumes, an encouraging development for real GDP,” JP Morgan’s Tom Kennedy noted.
The lift in imports of capital goods also bodes well for stronger GDP growth.
Capital goods imports rose another 5 per cent over the month, leaving it tracking well above first quarter growth.
“This data can be volatile … but it’s worth recognising that capital imports have historically maintained a decent correlation with future capex, so recent dynamics are an encouraging sign for business investment,” Mr Kennedy added.
Trade war, what trade war?
The data also highlights the importance of Australia’s trade with China.
“Australia’s rolling annual trade surplus with China rose from $48.8 billion to a record high of $51.7 billion in May,” CommSec’s Craig James observed.
“Aussies could be excused for thinking that there are no trade frictions in the global economy at present because, from our standpoint, conditions have never been better,” Mr James said.
Exports to the US also hit a new monthly record of $18.6 billion in May, up 23 per cent on a year ago.
Mr James said Western Australia and the Northern Territory are reaping big rewards from their commodity-focussed trade, with exports rising 24 and 62 per cent respectively over the year.
Housing approvals ‘unconvincing’
While the exporters are going gangbusters, the housing sector is still struggling.
Dwelling approvals rose marginally in May (+0.7 per cent), a bit better than expected, but still unconvincing according to Westpac.
Total approvals are still down 23 per cent on a year ago, made up of a 17 per cent slide in permits for private houses and 30 per cent drop in apartments.
“Despite the positives, the detail cautions against reading too much into the uptick, with the main upside surprise in the volatile high rise segment — a segment that still looks to have downside risks going forward — and other segments weak,” Westpac’s Matthew Hassan noted.
However, things may still pick up.
“All of this still predates several positive developments for housing, in particular; the federal election result —which has removed the threat of tax policy changes around negative gearing and capital gains tax — and the RBA’s interest rate cuts in June and July,” Mr Hassan noted.
“More timely market measures suggest wider housing market conditions have improved, especially in Sydney and Melbourne.
“We suspect that shift will be slow to flow through to new dwelling construction, with an overhang of stock in some segments and financing issues likely to continue restraining activity near term.”