Westpac’s take on the trade data from today:

  • Australia’s trade balance deteriorated sharply in May
  • Sharp fall in export earnings and … a sizeable downward revision to the April estimate
  • Exports surprised, declining by 4.6%, down $1,300mn. We had expected exports to fall by 1% in the month.
  • The detail reveals that exports of metal ores dropped some $760mn – we had expected a fall of $480mn
  • The ABS included a negative adjustment of $449mn to iron ore export earnings, which we had not anticipated.
  • A $352mn fall in other mineral fuels (which includes LNG) was a surprise, with this series on an upward trend on expanding capacity
  • Contributing to weakness were coal, down $119mn, and metals, falling $143mn.
  • The trade balance has swung from a surplus of $3.1bn in Q1 to a deficit of $2.7bn for the initial two months of Q2.
  • We expect the terms of trade to fall by around 3.7% in Q2 – a figure that we will need to review following data revisions by the ABS to iron ore. The drop in the terms of trade explains the bulk of this deterioration in the trade position between Q1 and Q2. We expect net exports to be broadly neutral for economic growth in Q2, following a 1.4ppts contribution in Q1. The risks to this number now appear to be tilted to the downside.