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While our trade deficit with the US has increased – our trade deficit around the world has improved by $109 million

AUSTRALIA'S yearly trade deficit with the US has blown out by more than 35 per cent since the pair signed a bilateral trade deal, with the blame falling on a rising Australian dollar and weakening consumer demand in the US.

But despite the worsening balance sheet with the US, Australia's deficit with the rest of the world improved in May, figures released yesterday showed.

The overall trade deficit narrowed to $807 million in May. This is a $109 million improvement from a revised $916 billion deficit in April.

The result was boosted by a 3 per cent jump in exports, which outpaced a 2.3 per cent lift in imports, the Bureau of Statistics figures show.

A Macquarie Bank economist, Brian Redican, said the trade balance was helped by a pick-up in iron ore exports after cyclones had disrupted production in Western Australian.

But he said the export growth was also broadly based: "Manufactured exports have picked up in the last couple of months. We export a lot of niche products, like large ocean-going ferries, and also a lot of cars to the Middle East."

Toyota exports Australian-made Camry cars to the Middle East, while the Middle East is also Holden's largest export market. Its Commodore and Statesman models are rebadged there as Chevrolets.

Australia's trade deficit with the US hit $14.9 billion in the year to May, a 35 per cent jump from $11 billion when the Australia US Free Trade Agreement came into force on January 1, 2005.

An ANZ economist, Alex Joiner, said weakened Australian agricultural exports could be helping the free trade agreement work in the US's favour.

The surging Australian dollar has also contributed to the increased deficit with the United States. With the currency hovering around 18-year highs – it closed at US85.79c yesterday – this makes Australian exports more expensive for US consumers and the price of US imports cheaper.

While local companies have been importing heavily to fuel construction in the mining sector, a general weakening in US consumption had affected Australian exporters to the US, Macquarie's Mr Redican said.

Agricultural exports are expected to pick up in the coming months, as a break in the drought helps out the winter grains crop.

Yearly car sales topped 1 million for the first time in June, Federal Chamber of Automotive Industries figures showed yesterday.

Source: SMH, 5/7/2007

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