Behold Australia’s current account surplus. Poof! It’s gone

Westpac is excited:

Australia’s record breaking run of quarterly current account surpluses continues – with, as we have highlighted previously, more to come.

In the September quarter, the current account surplus grew to a fresh record high of $23.9bn, up a touch from $22.9bn for June (upgraded from $20.5bn). As a share of the economy, the surplus represents 4.5% of GDP, up from 4.2%, and the largest on record.

That was the 10th consecutive quarterly current account surplus, starting from June 2019 – eclipsing the 7 quarter run between June 1972 and December 1973. Export earnings have increased by 16.3% since the start of 2019, boosted by higher commodity prices, while the import bill has contracted by 6.7% over that time. That has taken the trade surplus from $12.5bn for March 2019 (the time of the most recent current account deficit, of -$3.7bn) to $38.9bn currently.

For the September quarter 2021, the current account improvement of $1.0bn on June consisted of an $8.1bn widening of the trade surplus more than outweighing a $7.1bn deterioration in the net income deficit, to $15.0bn (representing -2.8% of GDP).

The trade surplus of $38.9bn for the September quarter represents 7.3% of GDP, a fresh record high, up from 5.7% last quarter.

The terms of trade rose by a further 0.5% in the quarter to be 23% higher over the year and 68% above the long run average.

Net exports made a sizeable positive contribution to growth in the third quarter, adding 1.0ppt. Export volumes rose, up by +1.2%, while imports slumped, down by -4.0%, on declining demand associated with the delta lockdowns.

Export earnings grew by 7.6% in the quarter to be 37% higher than a year ago. Higher prices, notably for commodities, have been the key driver of higher export earnings. Prices rose a further 6.3% in the quarter, to be 32% above the level of a year ago.

Export volumes have struggled to make headway, notwithstanding the modest 1.2% partial rebound in the quarter. Over the past year, volumes are up by a modest 3.3% to be still 11.8% below the level prior to covid, at the end of 2019.

The closed national border has crunched the trade of international services – notably, tourism and the international student sector. Service export volumes fell a further -8.4% in the quarter to be 11% lower over the year and 48% below pre covid levels.

Goods export volumes for the September quarter grew by 2.7%qtr, 5.9%yr to be 1.8% below pre covid levels.

Resource export shipments have underwhelmed, constrained by at times patchy global demand and by domestic supply disruptions. They rose by 3.0% in the September quarter, partially reversing a 6% slump in June, to be 1.0% higher over the year but still 3.4% below pre covid levels.

The uptrend in import goods volumes was interrupted by the delta lockdowns. Goods imports fell by -3.5% in the quarter but are 7.1% higher over the year and 7.3% above pre covid levels. It is capital goods imports that are leading the way higher, up by 4.4%qtr, 17.9%yr in the September quarter and 19% above pre covid levels – evidence of the underlying strength of business equipment spending.

Service imports printed at -8.2%qtr, -3.3%yr for the September quarter to be 59% below pre covid levels.

Wonderful! Except, from here, as China trudges through its structural property adjustment and bulk commodities collapse through 2022, the surplus will be gone in a year:

The pain that results will crush nominal growth, wages, inflation and the budget.

Of course, it will. Labor is going to win the election!

Houses and Holes
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