The Australian Bureau of Statistics (ABS) has just released trade data for the month of July, with Australia recording a big seasonally-adjusted increase in its trade deficit to -$556 million, from -$227 million in June. May and June’s trade balances were also revised lower, from -$313 million to -644 million (May), and from +$9 million to -$227 million (June).
It was the sixth month out of seven that Australia has recorded a monthly trade deficit (see below chart).
In seasonally adjusted terms, exports fell -$728m (3%) to $25.757 million. The fall in exports was partly offset by a -$399m (1%) fall in imports to $26,313m.
Australia’s major export – iron ore (23% share) – was flat over the month, whereas Australia’s second biggest export – coal (16% share) – fell by $243 million (see below chart).
Exports to China fell by -$1,050 (-14%) over the month, taking its share of total exports to 29% from 33% in June. By contrast, exports to Japan rose by $272 million (+9%), taking its share of total exports to 21% from 19% in June.
Given their status as Australia’s major producers of iron ore (Western Australia) and coal (Queensland), Western Australia and Queensland continued to dominate the nation’s exports in July. Western Australia alone accounted for 47% of Australia’s merchandise exports in July, much of which was iron ore (see below chart).
Western Australia continues to hold-up Australia’s trade balance, recording a whopping surplus of $7,333 million in July, again mostly on the back of iron ore exports (see below chart).
Finally, one good thing to come out of this release is that Australia’s services trade balance actually improved by $32 million over the month, driven by a reduction in tourism imports. Australian services exports also seem to have stabilised after a horror run since late-2008 on account of the high Australian dollar (see below charts).
With iron ore prices declining sharply in August, the immediate outlook for Australia’s trade balance is poor. Expect to see larger trade deficits over coming months as exports to China (the world’s major iron ore buyer) contract and quarterly iron ore price contracts are adjusted downwards.
Twitter: Leith van Onselen. Leith is the Chief Economist of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. Click for a free 21 day trial.
