Australian trade gap narrows to -A$ 2.7Bn in March

Australian trade gap narrows to -A$ 2.7 billion in March on exports

Owing to strong growth in exports, Australia's trade balance narrowed to a deficit of A$2.7 billion in March (JPMorgan -A$3.2 billion, consensus -A$2.9 billion) from a slightly revised deficit of A$3.3 billion in February.

Exports rebounded solidly to rise 4%m/m in March, reversing the 4% fall posted in February. Non-rural good exports were much stronger than expected, rising 6%, owing to shipments of metal ores and minerals (+16%) and coal, coke and briquettes (+23%). Both of these export groups had recorded sharp falls in the previous month as floods in parts of Queensland in January and early February curbed production from the state's coal mines. Rural exports spiked 6% in March, the largest rise this year, as farm output in key growing areas responded favourably to recent rainfall.

On the other side of the trade ledger, imports grew 1%m/m, falling in line with preliminary estimates. The strong 4% rise in capital goods was driven by imports of machinery and industrial equipment, reaffirming our view that solid business investment aimed at boosting productive capacity will continue through the year to June 2009. Imports of consumption goods were up 3%, while intermediate good imports were flat.

The trade deficit should continue to improve throughout the year. Exports should trend higher on the back of solid business investment aimed at alleviating the capacity constraints and infrastructure bottlenecks, particularly in the mining sector, that have restricted export volumes. Meanwhile, growth in imports will probably slow as domestic demand eases amid 12-year high interest rates. This will help net exports to eventually add to economic growth, despite being a significant drag in 1Q.

* The goods and services balance was -A$2.7 billion in March, a decrease of 16% from February.

* Exports rose 4%. Non-rural and other goods rose 5% and rural goods rose 6%. Services credits rose 1%.

* Imports rose 1%. Capital goods rose 4%, consumption goods rose 2%, and intermediate goods were largely steady. Services debits rose 1%.

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