Australia Finally Gets Trade Surplus

The Age

Friday October 3, 2008

Chris Zappone

AUSTRALIA has finally scored the trade surplus that the Reserve Bank long predicted, but some analysts warn the result may be as good as it gets, given the weakening demand for commodities worldwide.

The trade tab was in Australia's favour in August to the tune of $1.36 billion, the second-biggest surplus ever but only the second positive month in the past 75 months, according to figures from the Australian Bureau of Statistics. Economists had tipped a surplus of only $200 million.

The plus in the trade column owed much to a 26% spurt in coal exports, the largest single commodity, while metals rose 12%. Exports overall gained 6%.

Imports fell 2%, thanks mostly to cheaper oil, but electronics were among consumer goods to slide, according to JPMorgan economist Helen Kevans.

With this year's huge jump in coal and iron ore prices locked in for a while yet, economists expect Australian trade surpluses to lose their novelty in coming months.

"It is likely that we will see a continuation of the lift in resource exports in the short term," said St George Bank economist Marie Tasevski, in a client note. "If so, the strength in the trade balance should continue and we could see a strong net exports contribution" to gross domestic product for the September quarter, she said.

That contribution will come in handy as consumers and companies wind back spending in the midst of the global slowdown.

Opinions are mixed, though, about the longevity of any trade-led prop for the economy.

"Exports may come under pressure from a slowing world economy, especially if China starts to feel the effects of current global market developments more deeply," Ms Tasevski wrote.

But Rio Tinto boss Tom Albanese told a Melbourne lunch yesterday that China was merely "pausing for breath".

"I believe that China's economy is not being affected by the events of the past several weeks to the extent other economies have, (which) would reinforce our point that China has some built-in buffers from mature OECD economies," Mr Albanese told reporters.

Rio Tinto expects China's GDP growth to ease to 9% next year from 12% in 2007. That growth would allow Rio to glean "higher than average prices through 2009" for its commodities, Mr Albanese said.

Australian companies have also been aided by the weaker dollar. It is the worst-performing currency among major ones since the start of the financial year, having fallen 18% against the US dollar.

Australia's deficit with the rest of the world, when dividends and other payments are included, will still come in at about 5% of total GDP this year, according to consensus estimates compiled by Bloomberg.

© 2008 The Age

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