Australia has recorded its first trade surplus in three years, with that of international goods and services reaching $1.2 billion in November. This was much better than the market forecast of a $500 million deficit, as exports increased by an impressive eight per cent in the month of November and imports remained flat. At a time when a lot of the world is facing economic and political uncertainty, Australia is doing relatively well and this trade surplus is yet another example.
One of the main drivers of a significant leap in exports from Australia at the end of 2016 was the resurgent mining sector. Coal, coke and briquettes exports increased by 26% while metal ores and minerals grew by 11% in November. There was growth in other sectors too, with rural goods including cotton, cheese, butter, meat and more also rising.
Mining production levels reached record highs as well, but on the whole the demand for such commodities stayed at a similar level. Surging commodities prices and the low Australian dollar coupled together led to the main swing from a predicted trade deficit to a surplus for the end of the year.
It wasn’t just coal and iron ore from the energy sector which contributed to the trade surplus; LNG exports also climbed in the fourth quarter. Along with many other quiet achievers in November, figures for December are also looking positive for the energy industry and if commodity prices continue to surge then things could get better for Australian GDP growth.
This counters news that the Australian dollar has remained weakened, though it has helped create a trade surplus. However, this could soon change in the near future and Australia end up with a trade deficit should the currency strengthen.
Despite the good news for the Australian economy with its first trade surplus in three years, a number of risks still exist. Unemployment is an ongoing threat, even though the Australian jobs market is relatively healthy at the moment. With a low inflation rate and shifts in the economy to more service based roles, that could change.
Interest rates are also low, along with a weak Australian dollar, which unless they are tackled could lead to problems. Plus, while GDP growth has benefitted from this recent trade surplus, it did experience falls beforehand and this trade surplus has played a key part in avoiding Australia slipping into a recession.
There will be new trade opportunities for the country to maintain a surplus in the future though, most notably with the UK after Brexit. Negotiations are due to start later in 2017 and there have been many calls for the UK to forge a one-page free trade agreement between the two countries. Product and service standards would be recognised in both countries, allowing free trade between the nations. If such a deal will be created it is likely to be done so before Brexit is pushed through, so could be any time in the next couple of years.
Australia’s first trade surplus in three years is good news for its economy but only time will tell as to whether it will continue into 2017.