Rural slump blamed for trade deficit

Australia recorded its largest monthly trade deficit in 12 months in December on the back of a weak performance from the rural export sector, economists said today.

Data released by the Australian Bureau of Statistics showed a deficit of $358 million, seasonally adjusted. This was well below expectations of a balanced trade account and was the largest monthly deficit since December 2000.

"The weakness was reflecting flat exports," said Scott Haslem, senior economist at UBS Warburg.

"The weakness was not broad based in exports it was concentrated in the rural sector and fuel which both experienced quite large falls."

Rural goods exports fell by 11 per cent on the month after an eight per cent decline in November with the ABS noting a fall in wool and wheat exports being behind the poor result.

Still, rural exports are expected to improve coming into 2002 with demands beginning to pick up as the global economy starts its recovery.

"Some of the early signs are that in 2002 rural exports could well recover in the early months of this year," Mr Haslem said.

"Japanese consumers would appear to be returning to beef and also wool prices have done quite well."

This was the first time in 20 years that a sharp fall in rural exports has not been followed by a statistical bounce.

Looking forward, economists said exports were close to the bottom and that this should ensure that while the monthly trade deficit was likely to continue to deteriorate, it would not see a complete disintegration of the recent improvements in the overall trade balance.

"Our feel is that exports may be close to a trough, reflecting the nonrural areas of exports which were flattish to uppish in the month," Mr Haslem said.

"The weakness in rural was quite significant and broad based and may have more to do with supply issues."

On the import side there was an increase in imports of one per cent overall after a three per cent fall in November.

A strong 5.1 per cent rise in capital goods and a 4.7 per cent rise in intermediate goods were partly offset by a 7.6 per cent decline in consumption imports.

Overall, the result suggests that the current account deficit for the December quarter is going to widen significantly after a strong performance in the September quarter.

The December quarter had a cumulative deficit of about $464 million compared with a surplus of $1.4 billion in September. This should see the current account deficit widen to about 3.5 per cent of GDP from 1.6 per cent of GDP in the September quarter.

"It is clear that the expected deterioration in the external accounts from weak trading partner growth is now coming through," said global head of market economics at National Australia Bank, Tony Pearson.

"There is no doubt the trade accounts will deteriorate further over at least the next six months, with any turnaround dependant on a rebound in global growth."

Still, economists did note that with the global economy beginning to recover and Australia not outstripping the growth of its major trading partners as much into 2002, the trade deficit should remain moderate going forward.

"The fact that the extent of our economic outperformance will moderate this year as the global economy catches up and the fact that the (Australian) dollar is still handing us an incredible competitive advantage means that I don't think you want to get too carried away with the size of the deterioration in the current account deficit in (December quarter)," Mr Boyton said.

The Reserve Bank of Australia has said that it was expecting a deterioration in the trade accounts so today's result is not seen as a large surprise.

"There is no need for further policy stimulus at this stage, but nor will the RBA be looking for an early rate hike," Mr Pearson said.

"We believe the next move in cash rates will be an increase, but not until the RBA is confident that the global recovery is firmly on track."


	GOVERNMENT NEWS \| home Rural slump blamed for trade deficit The Age Thursday 31 January 2002 Australia recorded its largest monthly trade deficit in 12 months in December on the back of a weak performance from the rural export sector, economists said today. Data released by the Australian Bureau of Statistics showed a deficit of $358 million, seasonally adjusted. This was well below expectations of a balanced trade account and was the largest monthly deficit since December 2000. "The weakness was reflecting flat exports," said Scott Haslem, senior economist at UBS Warburg. "The weakness was not broad based in exports it was concentrated in the rural sector and fuel which both experienced quite large falls." Rural goods exports fell by 11 per cent on the month after an eight per cent decline in November with the ABS noting a fall in wool and wheat exports being behind the poor result. Still, rural exports are expected to improve coming into 2002 with demands beginning to pick up as the global economy starts its recovery. "Some of the early signs are that in 2002 rural exports could well recover in the early months of this year," Mr Haslem said. "Japanese consumers would appear to be returning to beef and also wool prices have done quite well." This was the first time in 20 years that a sharp fall in rural exports has not been followed by a statistical bounce. The Future Looking forward, economists said exports were close to the bottom and that this should ensure that while the monthly trade deficit was likely to continue to deteriorate, it would not see a complete disintegration of the recent improvements in the overall trade balance. "Our feel is that exports may be close to a trough, reflecting the nonrural areas of exports which were flattish to uppish in the month," Mr Haslem said. "The weakness in rural was quite significant and broad based and may have more to do with supply issues." On the import side there was an increase in imports of one per cent overall after a three per cent fall in November. A strong 5.1 per cent rise in capital goods and a 4.7 per cent rise in intermediate goods were partly offset by a 7.6 per cent decline in consumption imports. Overall, the result suggests that the current account deficit for the December quarter is going to widen significantly after a strong performance in the September quarter. The December quarter had a cumulative deficit of about $464 million compared with a surplus of $1.4 billion in September. This should see the current account deficit widen to about 3.5 per cent of GDP from 1.6 per cent of GDP in the September quarter. "It is clear that the expected deterioration in the external accounts from weak trading partner growth is now coming through," said global head of market economics at National Australia Bank, Tony Pearson. "There is no doubt the trade accounts will deteriorate further over at least the next six months, with any turnaround dependant on a rebound in global growth." The World Still, economists did note that with the global economy beginning to recover and Australia not outstripping the growth of its major trading partners as much into 2002, the trade deficit should remain moderate going forward. "The fact that the extent of our economic outperformance will moderate this year as the global economy catches up and the fact that the (Australian) dollar is still handing us an incredible competitive advantage means that I don't think you want to get too carried away with the size of the deterioration in the current account deficit in (December quarter)," Mr Boyton said. The Reserve Bank of Australia has said that it was expecting a deterioration in the trade accounts so today's result is not seen as a large surprise. "There is no need for further policy stimulus at this stage, but nor will the RBA be looking for an early rate hike," Mr Pearson said. "We believe the next move in cash rates will be an increase, but not until the RBA is confident that the global recovery is firmly on track." AAP home