Australia notches first current account surplus since 1975

An iron ore spike has driven Australia’s current account to a surplus for the first time since 1975.

A container ship is pushed to its berth by a tug at the Port of Melbourne. Picture: AFP

Australia posted its first quarterly current account surplus since 1975 in the second quarter, bolstered by soaring iron ore prices.

The surplus of $5.853bn comes as Chinese demand for iron ore rises and supply is disrupted elsewhere in the world. Economists expected a surplus of $1.5bn for the quarter.

Yet the first current account surplus in over 40 years happened in the midst of a worsening trade dispute between the US and China which is threatening to put the brakes on the world economy.

Watch the YoY GDP figures be revised up after those reads from the current acct - G and NE in GDP will drag it up now. Can hear the sigh of relief from the #RBA #ausbiz

— Evan Lucas (@EvanLucas_INV) September 3, 2019

The improved current account balance removes a potential source of vulnerability for the economy because it signals Australia is less reliant on foreign borrowing, economists said.

Still, the surplus also points to weak consumer demand and sluggish investment locally, both of which have curbed imports.

The net exports balance is expected to add 0.6 percentage points to second quarter GDP growth, likely sparing the economy from a contraction through the quarter.

Economists expect fairly moribund growth in the quarter due to falling construction and inventories, weak investment and a reluctance among consumers to spend.

The Reserve Bank of Australia is expected to leave official interest rates on hold at a record-low 1 per cent later today. Still, policy makers will leave open the prospect of further interest rate cuts as the outlook for growth is sluggish.

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