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Trade surplus surges to $2.5bn, beats expectation - Westpac

Andrew Hanlan, Research Analyst at Westpac, notes that in May, Australia’s trade surplus rebounded by more than expected, to $2.5bn from a revised $0.1bn as coal exports bounced back from the disruptions due to Cyclone Debbie.


Key Quotes


“In May, Australia’s trade surplus widened to $2.5bn, exceeding expectations (market median $1.0bn & Westpac $1.8bn)”


“Revisions to history were material, largely centred on a downgrade to exports.”


“The April surplus is now only $0.1bn, revised from $0.6bn, and the surplus for Q1 is $7.5bn, lowered from $9.2bn.”


“Key to the May result was business operations returning to normal, particularly for the coal industry, after the disruptions associated with Cyclone Debbie.”


“Total exports increased by 8.5% in May, up $2.6bn, reversing a fall of 7.5%, -$2.5bn, in April.”


“This was a sharper rebound than anticipated (Westpac +4.7%, +$1.4bn)”


“The back story is that coal export earnings declined from $5.4bn in February to $4.9bn in March and then slumped to $3.1bn in April, impacted by Cyclone Debbie.”


“In May, coal exports lifted to $5.0bn, +$1.9bn, to be largely back at their February levels. Shipments returned to normal in May and average prices increased.”


“In other detail, fuel exports rose $0.9bn on expanding capacity in the LNG industry, metal ores fell $0.6bn on lower iron ore prices and other exports combined rose by $0.3bn, with gains in rural (on higher prices); manufacturing; and services.”


“Turing to imports, they met our expectations, up 0.7% in the month, as the weaker currency placed upward pressure on prices.”


“As to implications, focusing on real net exports, they made a sizeable negative impact in Q1, subtracting 0.7ppts from quarterly GDP growth. Export volumes contracted by 1.6% in Q1 in large part due to weather disruptions.”


“The recovery in export volumes – in a quarter average sense – will be spread across Q2 and Q3. We expect real net exports to be broadly neutral for growth in Q2 and to make a sizeable positive contribution in Q3.”

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