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Lower mining exports dents trade balance

 

Australia's trade surplus has shrunk to its lowest level in six months following a drop in mining exports, but economists are hopeful it will not dent economic growth in the December quarter.

The trade surplus slipped to $105 million in October, from a revised $1.6 billion surplus in September, and significantly lower than market expectations of a $1.4 billion surplus.

The surprise decline was the result of lower exports and increased consumption-led imports, economists said.

"The worsening of the trade position was caused by a sharp drop in exports, led by mining exports," ANZ economists Jack Chambers and Jo Masters said.

Exports declined by a seasonally adjusted 3.0 per cent, or $903 million, in the month, led mainly by a fall in shipments of iron ore and coal, the country's top two export earners.

The value of metal ores and minerals exports were down 10.1 per cent, while coal slipped 2.7 per cent. Service exports also fell 1.6 per cent.

On the other hand, imports were up 2.0 per cent, or $596 million, with fuel imports accounting for half of the rise.

Large increases were also evident in consumption goods, led by household electrical items and textiles, clothing and footwear.

The weaker than expected surplus comes on the back of lower than expected economic growth of 0.6 per cent in the September quarter, in part because lower exports meant international trade did not contribute to growth.

JP Morgan economist Tom Kennedy expects October trade will have minimal impact on economic growth in the December quarter.

"Although October's trade surplus was smaller than anticipated, we view today's print as having only minor implications for our tracking estimate of fourth quarter real GDP," he said.

"The undershoot appears to be mostly price rather than volume-related, as spot iron ore prices fell sharply through late September and early October, and were likely a meaningful drag on iron ore revenues."

LNG export volumes are expected to accelerate in the final quarter of 2017 and early 2018 as major LNG projects are completed, Mr Kennedy said.