This was $269 million worse than the September deficit and almost $1 billion wide of the typical analyst forecast of a $600 million deficit.
The arithmetic behind the worse than expected deficit is simple enough: a 2 per cent increase in imports to $29.172 billion outweighed a 1 per cent rise in exports surprising to the high side at $27.631 billion
The Australian Bureau of Statistics figures follow this week’s shock 0.5 contraction in gross domestic product (GDP) in September, putting the nation’s annual growth rate at an anaemic 1.8 per cent. This is the first time Australia’s GDP has fallen below two per cent since the global financial crisis.
The figures had some analysts saying the worse than expected trade deficit would reduce GDP growth for the fourth quarter which would require the other parts of the economy to perform much better to avoid a recession.
“After yesterday’s news that GDP contracted in the third quarter, this means the chances of a recession (two consecutive quarters of falling GDP) have just increased,’’ Capital Economics chief economist Paul Dales said in a note to clients.
“It is possible that total export volumes will fall by 3 per cent in the fourth quarter, while import volumes may rise by 2 per cent.
“That combination would subtract 1.0 percentage point (ppt) from GDP growth in the fourth quarter, which would be bigger than the 0.2 ppt drag in the third quarter. This could all change when the November and December trade data are released. But at the moment, other parts of the economy will have to be much stronger to prevent another fall in GDP. That’s perfectly possible, and probable too, but we are now more worried.”
However, others said the deterioration might just be a question of timing.
“Since shipment volumes remain elevated, we view today’s miss as merely a timing issue and expect the rally in key commodity prices to be reflected in upcoming trade releases,” JP Morgan said.
The data shows hard coking coal export volumes fell 12 per cent, and thermal coal plunged 16 per cent. Semi-soft coking coal grew just 1 per cent.
On the plus side, iron ore and LNG volumes appeared to grow solidly, by around 2-3 and 5 per cent respectively.
Westpac’s Andrew Hanlan said the official data was yet to reflect the surge in coal prices. “As this is belatedly feed into the export figures, along with rising LNG volumes, the trade position is likely to move into surplus,” he said.
The ABS data shows the value of non-rural goods rose by $223 million with non-monetary gold increasing by $198 million. That was partially offset by a decline in the value of rural goods of $150 million with meat and meat preparations being the main drag on rural goods exports, falling $89 million.
The larger than expected deficit might leave too much ground to make up, even if Australia avoids slipping into a technical recession.
“There is going to be a lot of chat about whether Australia is in a recession or not, or is going to have a recession or not, but perhaps the bigger picture is that economic growth is just not as strong as everyone thought,” Mr Dales told the ABC.