Balance in red but outlook still positive

Australia's trade balance fell into the red in July, but it should bounce into the black in coming months as resource exports increase.

Australia's trade balance fell into the red in July, but it should bounce into the black in coming months as resource exports increase.

The July deficit was $765 million, following a surplus of $243 million in June, the Australian Bureau of Statistics said on Thursday. Export growth was flat in July, while imports were up 4 per cent.

Macquarie senior economist Brian Redican said it was inevitable exports would resume their rise as more mining and resource projects moved into production and start shipping exports.

"Policymakers will be fairly confident. Even if it is weak for a couple of months, the resource export volumes will keep rising for the remainder of the year," he said.

"I don't think there'll be any cause for panic.

"It's definitely a softer number. I don't think a lot of people will say it's the beginning of a trend, just an unfortunate part of the volatility of the trade numbers."

JPMorgan economist Tom Kennedy said a rise in the cost of imports was a big factor in the trade balance falling back into deficit.

"This import strength was due to the near 10 per cent month on month surge in West Texas Intermediate spot oil prices between June and July, and moderate decline in [the] Australian dollar, which resulted in nominal fuel and lubricant imports soaring," he said.

CommSec economist Savanth Sebastian was a little surprised with a July deficit, but also expects improvement in the months ahead.

"We've run some pretty substantial deficits over the past year," he said. "But when you look at it from a broader context, the deficit has been eroded over time. If anything, we are getting towards a surplus in the long term."

Large iron ore projects and a lower Australian dollar would help deliver a surplus in the future, he said.

Much of the focus surrounding the 12 per cent slide this year in the Australian dollar is concentrated on the support it is expected to provide to domestic activity, given the boost it provides to exports. But economists caution there are some negative aspects of a lower currency for the consumer. A lower Australian dollar effectively means a cut to real spending power as the cost of imported goods rises.

The ABS figures were unlikely to inspire the Reserve Bank to further cut the cash rate, Mr Sebastian added. But the below-trend growth outcomes as revealed in this week's GDP data mean the RBA is still likely to maintain an easing bias.

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