Australia: Current account deficit narrows less than expected – ANZ

The research team at ANZ explains that the Australian current account deficit narrowed a touch in Q1, underpinned by a further improvement in the trade surplus.

Key Quotes

“Surprisingly, the income deficit widened sharply. With commodity prices having already reversed part of their earlier gains, we expect the current account balance to broadly move sideways over coming quarters. Net exports subtracted 0.7ppts from GDP growth, more than expected.”

“Key Points

• Australia’s current account deficit (CAD) was much larger than expected in Q1, narrowing slightly to AUD3.1bn from a downwardly revised 3.5bn in Q4 2016. While the trade surplus improved broadly in line with expectations, a sharp widening in the income deficit was a surprise.  While the outcome for the CAD was disappointing, at 0.7% of GDP it is at its lowest since 1979.
• Net exports look to have subtracted 0.7ppt from Q1 GDP growth. 
• The volume of exports dipped by 1.6% in Q1, largely driven by a decline in resource exports (down 4.6% q/q). This may be partly due to temporary weather related disruptions. Going forward, Q2 resources exports are likely to be negatively affected by Cyclone Debbie. Meanwhile, exports of services continue to trend higher, up 2.5% q/q. 
• After surging the previous quarter, export prices moderated somewhat in Q1, up a still strong 7.0% q/q. The rise in export prices was driven by ongoing strength in commodity prices in the quarter. 
• Import volumes rose a solid 1.6% q/q in Q1. The strength in imports was broadly based, with the only exception of intermediate goods imports (down 0.2% q/q). Import prices ticked higher – up 0.4% in the previous quarter. 
• The terms of trade rose by 6.6% in Q1 after a bumper 9.6% rise in the previous quarter. We expect the terms of trade to turn lower in Q2 reflecting the part-reversal in commodity prices over recent months.”