Trade surplus hides soft domestic economy

Paul Osborne
(Australian Associated Press)

 

Booming resource exports have helped Australia deliver its first current account surplus in 44 years, but other areas of the economy aren’t faring as well.

Increased export volumes of liquid natural gas, coal and iron ore helped lift the account from a $2.9 billion deficit to a $5.9 billion surplus in the June quarter – the first since June 1975.

Trade Minister Simon Birmingham said the figures highlighted the value of trade agreements and the strength, resilience and international competitiveness of Australia’s export sector.

“We remain committed to our plan of ensuring that around 90 per cent of Australia’s trade is covered by free trade agreements by 2022,” he said.

However, the trade surplus – which will contribute about 0.6 per cent to GDP growth when the June quarter figure is released on Wednesday – pointed to weak consumer demand and soft investment levels.

It’s expected the growth figure will be around 0.5 per cent for the quarter, or 1.4 per cent year-on-year.

As millions of Australians waited for their tax refund cheque, retail spending fell by an unexpected 0.1 per cent in July, missing forecasts of a 0.2 per cent rise.

Total seasonally-adjusted retail spending fell to $27.41 billion for the month, with cafes, restaurants and takeaway services leading a first fall in three months, the Australian Bureau of Statistics reported on Tuesday.

The Reserve Bank, which kept the cash rate on hold at 1.0 per cent on Tuesday, flagged it would ease rates further “if needed to support sustainable growth”.

The phrase “if needed” has widely been interpreted as leaving scope to hold off on cutting rates further at the RBA’s next meeting in October.

The outlook for the global economy remained “reasonable”, the RBA said, although the risks were tilted to the downside.

“A further gradual lift in wages growth would be a welcome development,” RBA Governor Philip Lowe said in a statement.

Shadow treasurer Jim Chalmers said the RBA was doing all the heavy lifting while the economy floundered under the coalition’s watch and was dangerously exposed to global turbulence.

“After two post-election rate cuts, this third-term Liberal government has no plan for growth,” he said.

“Right when the Australian economy needs action to turn things around, Scott Morrison and Josh Frydenberg have a political strategy but not an economic policy.”

Dr Sarah Hunter, chief economist for BIS Oxford Economics, said improvements in Sydney and Melbourne housing markets – as well as cuts to interest rates and income taxes – should provide a boost over the next 12 months.

“But a broad-based pick-up won’t materialise until growth in household income accelerates,” she said.

“Given the construction sector downturn – which will weigh on employment – and the weakness in wages growth, we do not expect to see this in the near term.”

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