An increase in imports has reduced Australia’s trade surplus by more than $4.33 billion in February 2022, According to the most recent Australian Bureau of Statistics data.
A nation has a trade deficit when it spends more on imports than it earns on exports.
“In seasonally adjusted terms, the balance on goods and services was a surplus of $7,457m in February 2022, a decrease of $4,329m on the surplus in January 2022.
“Goods and services debits (imports) rose $4,449m (12%) to $41,312m, driven by increases in imports of Processed industrial supplies n.e.s and Fuels and lubricants,” ABS said.
The decline in the trade surplus may put pressure on the Australian dollar. Meanwhile, Australia’s current account surplus decreased by $9.3 billion to $12.7 billion (seasonally adjusted) in the December quarter of 2021, according to the latest figures from the Australian Bureau of Statistics (ABS).
A current account deficit occurs when a country sends more money abroad than it receives from abroad. If the nation receives more money from abroad than it sends, it has a current account surplus.
Credit rating agency Fitch Ratings previously predicted that Australia’s current account surplus would fall to 2.0 per cent of GDP in 2022, down from an estimated 3.7 per cent in 2021.
“We at Fitch Solutions forecast Australia’s current account surplus to narrow to 2.0% of GDP in 2022 from an estimated 3.7 per cent in 2021 due to three reasons. Firstly, we expect a domestic demand recovery – as activity normalises – to drive strong goods import growth, while exports growth suffers due to the slowdown in China,” Fitch said.
“This will likely offset an improvement in services exports spurred by the reopening of borders. Secondly, Australia’s terms of trade have likely peaked and we expect a slight reversal in the coming quarters due to the easing of commodity prices from the spot level.
“Lastly, we expect Australia’s primary income deficit to widen as the Reserve Bank of Australia starts to hike interest rates and as corporate dividends improve. This will likely remove some level of support for the Australian dollar, which partially informs our view for the currency to weaken against the greenback in the near term.
“While the spread of the omicron variant may lead to a softer economic outlook in the near term, we believe that this will not derail the economic reopening as Australia has achieved a high degree of vaccination coverage,” Fitch added.
“According to our World in Data, 78.7 per cent of the population is fully vaccinated as of February 5. Additionally, 34.7 per cent of the population have received their booster shots, compared to just 1.8 per cent on December 1.”
Primary deficit to widen
Meanwhile, Fitch warned that Australia has historically run a large primary income account deficit due to large dividend and interest payments owed to foreign investors.
“We expect Australia’s primary deficit to widen in 2022, as the economic recovery leads to better corporate performance and higher dividends.
“Furthermore, we expect the RBA to hike interest rates by 40bps in 2022, and this will likely lead to higher bond yields and interest payment outflows. The overall national government bond holdings held by the rest of the world stood at around 47 per cent as of September 2021.”
The lifting of border restrictions is unlikely to lead to a surge in outbound tourists. This is because travel and testing rules in the region are likely to remain strict and cumbersome in the near term for Australia’s main tourism outbound partners (as of 2019) amid the omicron variant.
Recently, in its monetary policy meeting of 2022, the Reserve Bank of Australia (RBA) board kept the official cash rate – the rate banks pay to lend to and borrow from one another – at 0.1 per cent. Read here for more.
Here’s the Fitch commentary