Capital economics says the Australian economy "will probably escape a recession (two consecutive falls in GDP), but only just."

On today's November trade data (bolding mine):

  • The huge swing in the trade balance from a deficit of $1.1bn in October to a surplus of $1.2bn in November is mainly because higher commodity prices are boosting export values
  • Exports volumes, however, probably still fell in the fourth quarter
  • That means net exports were probably a large drag on real GDP in the fourth quarter, albeit by less than we previously feared
  • As well as the improvement in November, the trade balance was revised up by a cumulative $3.9bn in the previous nine months of last year. It seems the external sector has performed much better than we all thought
  • In November, the 8.4% m/m leap in export values was mainly due to an 11% m/m gain in iron ore exports, a 26% m/m leap in coal exports and a 22% m/m rebound in meat exports.
  • Those large rises in export values are mostly due to rapid rises in prices rather than volumes
  • The non-seasonally adjusted data do show that coking coal export volumes rose by 12% m/m. But thermal coal and iron ore export volumes rose by just 1% m/m. The upshot is that the rise in commodity prices that has generated the trade surplus has not resulted in much higher export volumes, and that's crucial for real GDP growth.
  • We estimate that export volumes fell by around 3.0% q/q in the fourth quarter as a whole. After subtracting 0.2 ppts from real GDP growth in the third quarter, net exports may have subtracted around 0.8 ppts in the fourth quarter.
  • The economy will probably escape a recession (two consecutive falls in GDP), but only just.

Capital Economics are not as sanguine on the data today as other analysts ...

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I posted on the trade balance earlier:

  • Australia Trade Balance for November: SURPLUS $1243m (expected -$550m, prior -$1541m)
  • Australia Nov. trade balance - export trend surges higher
  • Westpac: Q4 has seen a much better net export performance for Australia
  • CBA on Australian trade balance: Trade surpluses are clearly on the cards in 2017