Good news already today to drive those economic bears back into their caves. This was ANZ's summary:
A timely reminder today of the bonanza to the Australian economy from the H1 2010 commodity boom. The trade surplus blasted expectations out of the water to come in at $1645mn in May, more than three times the market forecast of $500mn. Moreover April’s surplus was revised up by nearly $1bn to $1123mn (from $134mn).
May’s surplus was driven by 6.0% rise in exports which more than offset a 3.9% rise in imports. Importantly, the rise in exports was broadly-based. To be sure, resource goods exports led the way, rising 11% in May following an upwardly revised 25% rise in April, mainly due to stronger coal and iron ore prices. But it was also pleasing to see an 11% rise in rural goods exports and also a 5% rise in manufactured exports. Also note that non-monetary gold rose an extraordinary 68% in April. This most likely reflects the choppy nature of demand for this series (and so shouldn’t be taken as signalling a continuing trend!). Services were the only sector to let the export side down, dropping a big 6% in April. This was not due to weaker travel or tourism related services, both of which rose, but instead was due to a sharp fall in the component of manufacturing services on physical inputs owned by others.
On the imports side we see creeping evidence of the awaited strengthening of domestic demand. Consumption goods imports rose a strong 4% in April, capital goods imports were up an even stronger 6% and intermediate goods imports were up 3%. Services imports however fell 2%, the second consecutive monthly fall.
The ABS has noted that resource exports will be progressively revised as further information on contract prices becomes available. This suggests recent trade data may be subject to further upward revisions in the months ahead.
Not the peak yet
We still don’t think we have seen the peak in the trade surplus. In Q3 we look for contract iron ore prices to rise another 23% and for coal contract prices to rise a further 2%. This suggests Australia should enjoy further large trade surpluses until August-September.
For 2010 we expect Q3 will be the peak in these commodity contract prices. But do look for further coal price rises in 2011, mainly due to strong demand from India. And we look for current high iron ore prices maintained, not fall away sharply, with underlying demand from China likely to remain robust. Hence, we expect the terms of trade will rise further in Q3, maintain an elevated level in Q4, and then rise again to a new record high in Q1 2011. This is of course is predicated on a ‘soft landing’ in China. But so long as our relatively benign outlook for the Asian region eventuates, this trade outlook is undeniably a strong buffer to current advanced economy woes.
