Trade boom rolls into May as commodity exports climb

An ongoing boom in commodity export earnings looks likely to ‘cushion’ a slowing economy, as new figures revealed Australia’s trade surplus lifted by $1.3bn to $11.8bn in May.

Australia’s trade surplus lifted to $11.8bn in May.

An ongoing boom in commodity export earnings looks likely to “cushion” a slowing economy, as new figures revealed Australia’s trade surplus lifted by $1.3bn to $11.8bn in May.

The unexpectedly strong export figures released by the Australian Bureau of Statistics were thanks to a large monthly increase in export volumes of key commodities such as gold, iron ore, coal and LNG, which more than offset a fall in prices.

Exports of goods and services climbed by 4.4 per cent, or $2.4bn, in May to $57.8bn. That was well above the 2.5 per cent, or $1.1bn, monthly increase in imports to just under $46bn.

As ongoing trade strength boosts federal and state budget bottom lines, Australia has run a monthly trade surplus for 5½ years.

With commodity prices falling, CBA economist Harry Ottley said it was possible the strong export figures for May could partly reflect contractual delays in passing on those lower prices, as well as higher sales volumes.

“On a longer timescale, however, lower commodity prices will inevitably place downward pressure on exports,” Mr Ottley said.

Iron ore sales eased to $14.6bn but coal export values climbed to $9.6bn in the month; LNG exports increased to $8.7bn and gold jumped to $2.9bn.

Rural goods also bounced back, climbing by 5 per cent in the month to $6.2bn, the seasonally adjusted figures showed.

Capital Economics economist Abhijit Surya said the latest figures suggested exports would “cushion” the economy from the hit from falling consumer spending as interest rate rises and cost of living bite.

“The data point to a decent contribution from net trade to GDP growth” in the June quarter, Mr Surya said, “but given that the outturn is partly a reflection of underlying weakness in domestic demand, it doesn’t change our downbeat outlook for the Australian economy.”

Analysts said the increase in imports was flattered by another strong month for car purchases – which jumped by 30 per cent in May, even as every other category of consumer good imports fell.

NAB head of market economics Tapas Strickland said the surge in vehicle imports “may reflect order backlogs being delivered, as well as delivery ahead of 30 June for the $150,000 instant asset write-off introduced during the pandemic”.

Oxford Economics lead economist Ben Udy said consumer goods import values were still almost 10 per cent above their average level in the first quarter of this year, “far more than the rise in prices over that period”.

“That suggests that households are continuing to shrug off headwinds from high interest rates and inflation and are still spending,” Mr Udy said.

“If this resilience feeds into continued strength in retail sales and consumption in the months ahead, the case for further RBA rate hikes will strengthen.”

The data showed service exports rose a further 1.4 per cent, with tourism-related exports back to pre-Covid levels in dollar terms.