News of the second consecutive monthly trade deficit does not augur well for economic growth in early 2012.
The trade deficit came in at $480 million in February, according to seasonally adjusted data from the Australian Bureau of Statistics (ABS) on Wednesday.
Exports of goods and services were down by 2.1 per cent while imports were down by 3.9 per cent, narrowing the trade deficit but not making it go away.
It was the second month in a row that the trade balance was in the red, after a deficit of $971 million in January.
The trade balance had been in the black for 20 of the previous 21 months, from April 2010 to December 2011 – the exception being flood-affected February 2011.
Financial markets do not generally react much at all to the monthly trade figures these days, in contrast to the 1980s when they often had a dramatic influence on the exchange rate.
But at a time when the Australian economy is supposedly being propelled along by the export commodities boom, it is rather disconcerting when the year begins with a pair of deficits.
The Australian dollar’s dip after the data, from around 103 US cents to 102.7 or so, is evidence of the market’s puzzlement.
So far in the first quarter, exports of goods and services are down by nine per cent compared with the December quarter average, while imports are down by two per cent.
Even allowing for some fall in the prices of export commodities on world markets, that does suggest a widening of the trade deficit in real terms in the quarter.
That in turn implies foreign trade most likely made a negative contribution to economic growth in the quarter.
In other words, for any given rise in spending in Australia, the rise in production was smaller because of the greater proportion of demand satisfied from abroad rather than by local producers.
In recent months, economic policy has been driven by the assumption that the mining boom will at worst offset the other negatives afflicting the economy and more likely tip the balance toward excessive economic growth in the absence of countervailing policy measures.
That has been the rationale for both the resistance of the Reserve Bank of Australia (RBA) to cutting interest rates and the government’s single-minded pursuit of a budget surplus in 2012/13.
But the trade figures, like other indicators of weak economic growth lately, are evidence that such an assumption is not necessarily firmly based in reality.
The national accounts, due on June 6, will include the official estimate of gross domestic product (GDP) growth for the March quarter.
