Massive surplus rings good news bell

A bulk carrier gets loaded with Iron ore from the Roy Hill mine in Western Australia.

This is mind-bogglingly extraordinary and getting even more mind-boggling as each quarter rolls out.

Australia is recording massive current surpluses, the like of which we’ve never seen before, and it’s all down to selling iron ore to China, with a little bit of help from selling coal to everyone but China.

Furthermore, it’s all been happening through the two years of the global pandemic, which has been more than somewhat ‘disruptive’ to the global economy and to global trade.

But not, it would seem, to the two things we excel at digging up and shipping off to the northern hemisphere. Until of course, we stop doing it to save the planet from frying.

In the September quarter, our current account surplus hit a record $24bn, according to the official data from the ABS, up from the only slightly less spectacular $23bn in the June quarter.

So far this year the surplus has added to $67bn. It will likely reach $80bn for the year, as iron ore prices have come back in recent months.

The final figure will also depend on whether we can get the imports in of mostly Chinese ‘stuff’ that the retail sector is trying to flog in what should be – if the stock arrives – the biggest November-December retail spendathon of all time.

This bodes very well for the economy.

We will see a better-than-expected GDP growth number for the September quarter in the official data from the ABS Wednesday.

With the NSW and Victorian economies in lockdown through most of the quarter, national GDP was heading for a 3-4 per cent fall.

Now it looks more likely to be less than 3 percent, maybe even significantly less. Our volume trade surplus – the actual iron ore and coal volumes, less (mostly) the ‘stuff’ from China – was worth a full 1 per cent plus to the GDP number.

Subject to what happens with the virus – and, even more, as usual, how governments respond – we are heading for a very strong December quarter, with if anything and, extraordinarily, only labour shortages holding it back.

At the start of November, the Reserve Bank forecast growth over the two quarters would net to plus 0.4 per cent: a big fall in September and a slightly bigger rise in December.

In my view, the September fall will be sharply less and - again, to stress, subject to the virus/governments – the December quarter rise sharply higher.

Over the two quarters I would expect growth to easily top 2 per cent (as against the RBA’s 0.4 per cent) and even perhaps 3 per cent.

Now, these much better numbers – and expectations – won’t change the RBA’s thinking and so what it plans to (not) do with its official interest rate; at least not yet, and certainly not at next Tuesday’s last policy meeting for the year.

But it will certainly give it plenty to think about over the next two months ahead of its first meeting back for the year in early February.

Just how spectacular is the coming $80bn or so surplus for this year?

It’s a big leap on the $52bn surplus in 2020. More strikingly, we’ve only been in surplus since mid-2019.

Before that, it is deficits, every quarter, all the way back close to half-a-century to the early-1970s, when Gough Whitlam was PM. And back then they were tiny surpluses.

Forget pandemic, current account deficits – and indeed, large ones: you only have to go back to the 2017-18 fiscal year to find a $50bn deficit – were endemic.

So endemic, that the acronym CAD – current account deficit – was effectively the acronym for the current account balance, as it was always a deficit.

The China-based surplus is really a very big thing and it poses some very big questions.