Recent trade data coming out of Australia has not been good. In January, Australia’s trade balance moved to a deficit of -$971m, a whopping turnaround of -$2,229 million from December 2011′s trade balance. And then in February, another deficit of -$480 million was recorded – a result that would have been much worse had the fall in exports of -$518m (to $24,425) not been more than offset by a reduction in imports of -$1,009m (to $24,905m).
Now the bad news continues, with the Australian Bureau of Statistics (ABS) today reporting that export prices fell -7.0% in the March quarter of 2012, compared with a more moderate -1.2% fall in import prices (see below table).
According to the ABS, the -7.0% decrease in export prices in the March quarter was driven by falls in the prices received for metalliferous ores and metal scrap (-11.7%), coal, coke and briquettes (-11.3%), gold, non-monetary (excluding gold ores and concentrates) (-3.9%), and gas, natural and manufactured (-4.1%). These decreases were partly offset by rises in the prices received for medicinal and pharmaceutical products (+8.0%).
By contrast, the -1.2% fall in import prices was driven by falls in the prices paid for medicinal and pharmaceutical products (-7.1%), telecommunications and sound-recording and reproducing apparatus and equipment (-4.4%), office machines and automatic data-processing machines (-4.0%), machinery specialised for particular industries (-3.3%) and gold, non-monetary (excluding gold, ores and concentrates) (-3.9%).
The appreciation of the Australian dollar against most of our major trading currencies contributed to this decrease. These decreases were partly offset by rises in the prices paid for petroleum, petroleum products and related materials (+1.4%) and inorganic chemicals (+21.3%).
Based on this release, Australia’s terms-of-trade (ToT), which is calculated by dividing export prices by import prices, is headed lower which, other things equal, should reduce national income and lower the Australian dollar. Australia’s ToT has now fallen by -9.5% since the September quarter of 2011, according to economist Stephen Koukoulas.
It looks like Australia’s golden ToT run, which began in 2004, may finally be coming to an end. Australia will now have to earn its keep the old fashioned way, via improvements in productivity.
