Balance in red but outlook still positive
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.
Frequently Asked Questions about this Article…
In July Australia’s trade balance slipped into a deficit of $765 million, down from a $243 million surplus in June. Exports were flat in July while imports rose about 4%, according to the Australian Bureau of Statistics.
Economists say the main drivers were stronger import costs and higher fuel bills. JPMorgan’s Tom Kennedy pointed to a near 10% month‑on‑month surge in West Texas Intermediate oil prices between June and July and a modest fall in the Australian dollar, which pushed up nominal fuel and lubricant imports.
Yes — most economists quoted in the article expect improvement. Macquarie’s Brian Redican and CommSec’s Savanth Sebastian say rising resource export volumes as new mining and iron ore projects come online, together with a lower Australian dollar, should help push the trade balance back into surplus in coming months.
For everyday investors the July deficit appears to be a short‑term setback rather than a big structural concern. Economists described the number as volatile and not a cause for panic; they expect resource exports to lift the balance going forward. However, investors should be aware that import price pressures and currency moves can affect costs, company margins and consumer spending.
A lower Australian dollar typically helps exporters by boosting the value of resource shipments and supporting domestic activity, which can be positive for companies that sell overseas. At the same time, a weaker currency raises the cost of imported goods and fuels, which reduces consumers’ real spending power and can squeeze margins for businesses that rely on imports.
The article suggests the ABS trade figures alone are unlikely to push the Reserve Bank into another cash‑rate cut. CommSec’s Savanth Sebastian said the numbers won’t inspire immediate cuts, but below‑trend GDP growth means the RBA is still likely to keep an easing bias.
Resource exports — especially large iron ore projects and other mining operations coming into production — are expected to drive export volumes higher and help deliver a surplus in the future, according to the economists cited.
Everyday investors should monitor ABS trade updates, shipments from major mining and iron ore projects, movements in the Australian dollar, and global oil prices (like West Texas Intermediate). Also keep an eye on GDP releases and the RBA’s commentary, since those will influence monetary policy and the economic outlook.
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