We’re a bit short handed today so here is a take from NAB on the Balance of Payments and implications for tomorrow’s GDP:
Today we saw the last two quarterly partials ahead of tomorrow’s GDP release with the Q4 balance of payments and government spending reports.
From the BoP, the net exports contribution to GDP was +0.3% percentage points (slightly higher than NAB forecast of +0.2pps, and better than market’s 0.0pps) while total government spending in Q4 rose 0.9%, again better than the -0.7% we expected. There was a gain of 1.0% in government consumption spending, while government investment spending rose 0.6%
The downside risk to our 1.1% Q4 GDP forecast from the business investment and profits data seems to have been fully offset by the positive surprises on inventories, net exports and government spending, so we will stick with our 1.1% forecast for tomorrow’s GDP report.
On the detail, Australia’s current account deficit widened to $8.4bn in Q4 from $5.8bn in Q3. All the deterioration was in the value of trade in goods and services (down $2.5bn to $3.6bn), whereas the net income deficit was steady at -$11.8bn.
While there was an improvement in the real trade balance (export volumes up 2.2% and import volumes up only 0.6%, leading to the positive GDP contribution of 0.3pps), offsetting that was the deterioration in the terms of trade. The ToT fell 4.6% in the quarter, mostly due to a 5.5% fall in export prices (import prices fell 0.7%). So in value terms, exports values rose only 0.4% while import values rose 3.8%.
Indeed, export volumes of cereal grains, metal ores and minerals, metals, and coal exports all rose in Q4, but prices for all these sectors saw declines.
In coming quarters we expect that export volumes will not keep up with the growth in import volumes. Combined with a continuing fall in the terms of trade, the current account position will continue to deteriorate. As a % of GDP the current account deficit now stands at 2.3%, but in a year’s time we expect that will more than double to over 5%.