The Bull

Thursday 14

December, 2017 3:00 PM



Record exports to China

Record exports to China

The trade surplus fell from a revised $1,604 million in September to $105 million in October.

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07.12.2017 03:53 PM

Record exports to China; Engineers in demand
International trade; Construction activity

Trade surplus: The trade surplus fell from a revised $1,604 million in September to $105 million in October. The rolling 12-month surplus rose from $18.9 billion to a record $20.1 billion. Exports to China hit a record $102.29 billion in the year to October.

Construction activity: The Australian Industry Group Performance of Construction index rose to 57.5 in November from 53.2 in October. Engineering construction activity increased by 3.2 points to 11-year highs of 64.1, supported by strong infrastructure-related spending. Any reading above 50 signifies expansion or growth of activity. The trade data has the potential to affect the Aussie dollar so it may be important for exporters. The construction activity gauge highlights conditions in the sector as well as providing guidance on the economy more generally.

What does it all mean?

Australia recorded a 12th consecutive monthly trade surplus in October. However, the surplus narrowed to $105 million from $1,604 million in September as exports fell by 3.0 per cent – the lowest since April.

Exports of Australia’s key commodities, such as iron ore and coal, declined on reduced demand amid a policy crackdown in China. The Chinese authorities have focused on clamping down on high polluting steel mills, in particular, to alleviate pollution in China’s northern cities. Rising gold and natural gas exports provided a partial offset.

This didn’t stop annual exports to China rising to record highs though, reaching $102.3 billion in October. A third of all Australian goods are sent to China – more than any other country.

At the same time, the services accounts remain in surplus with the overall annual surplus of goods and services hitting a record high of $20.1 billion for the year to October.

Australia is paying its way in the world and the record trade surplus is fundamentally supporting the Aussie dollar.

The Aussie construction industry expanded for a 10th consecutive month in November. Across the four major sub-sectors in the survey, engineering construction activity was robust, expanding for an 8th consecutive month to 11-year highs. Government spending on road, rail and public transportation-related infrastructure projects continues to drive engineering jobs, wages growth and construction work.

The home building sector also expanded in November with activity up by a very healthy 8.3 points to 61.3. Apartmentrelated activity edged higher, but remained at contractionary levels of 47.7 as investor demand continued to wane following the recent tightening of lending.

What do the figures show?

International trade:

The trade surplus fell from a revised $1,604 million in September to $105 million in October. The rolling 12-month surplus rose from $18.9 billion to a record $20.1 billion. 

The net services accounts fell from a $159 million surplus to a deficit of $78 million.

Exports of goods and services fell by 2.8 per cent in October (goods down 3.1 per cent). Imports of goods and services were up 1.9 per cent (goods up 2.0 per cent).

Total exports are up 10.9 per cent on a year ago, while imports are up 6.7 per cent.

Rural exports fell by 2.1 per cent in the month while non-rural goods fell by 5.5 per cent and gold exports rose by 24.1 per cent.

Within imports, consumer imports rose by 2.4 per cent in October with capital goods imports down by 1.9 per cent while intermediate goods imports rose by 4.2 per cent.

Consumption goods imports were up by 6.0 per cent on a year ago while capital goods imports were up 1.2 per cent and intermediate goods imports were up by 11.3 per cent.

Australia's annual exports to China lifted from $100.72 billion to a record high of US$102.29 billion in the year to October. Exports are up 37.0 per cent on a year ago. Exports to China accounted for 36.7 per cent of Australia's total exports – a record high.

Australia's annual imports from China rose to a record high of $62.2 billion in the year to October, up from $61.6 billion for the year to September. Imports were up by 3.7 per cent on a year ago. Imports from China accounted for 22.0 per cent of Australia's total imports.

Australia's rolling annual trade surplus with China hit a 3-year high of $40.1 billion in October, although this is still down from the record high of $42.8 billion set in April 2014.

Australia’s exports to India hit fresh 6-year highs, totalling $16.1 billion in the year to October, up 64.1 per cent on the year.

What is the importance of the economic data?

The monthly International Trade in Goods and Services release from the Bureau of Statistics provides estimates on exports and imports of physical goods (such as coal, beef and computers) and services (such as travel receipts). The balance of goods and services (BOGS) is a narrower description of Australia’s external position than the current account estimates. The import data is a useful gauge of consumer and business spending while exports reflect global demand as well as domestic influences such as drought.

The Australian Industry Group monthly survey of construction activity is a seasonally adjusted national composite index based on the diffusion indexes for activity, orders/new business, deliveries and employment with varying weights. A reading above 50 points indicates construction activity is generally expanding; below 50, that it is declining. The distance from 50 is indicative of the strength of the expansion or decline.

What are the implications for interest rates and investors?

CommSec expects interest rate stability until at least the end of 2018.

The record trade surplus, albeit smaller, provides fundamental support for the Aussie dollar.

Infrastructure-related construction work is booming across the nation. While mining projects have been completed, the handover to non-mining sources of construction, especially road, rail and transport projects are driving growth and creating jobs. According to employment advertising website SEEK, engineering job ads are up by 36 per cent over the year to October.

Originally published by Ryan Felsman, Senior Economist, CommSec
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