Australia: Q1 current account deficit shrinks to nothing – TDS

Analysts at TDS notes that the Australia’s March trade surplus was $A3.1b, and as a result the Q1 current account deficit is on track to shrink to a tiny –0.2% of GDP.

Key Quotes

 “Australia has had the tag of having “extreme” foreign debt for quite some time. In 2015, foreign debt surpassed $A1tr and attracted a plethora of such negative headlines.”

“As at December 2016, foreign debt eased to $A1.02tr, or 60% of GDP. Recent favourable trade flows—and the steady shrinking of offshore ownership of ACGBs towards 50%—leads us to believe that foreign debt has peaked, and could shrink further into 2018 at least.”

“The March trade surplus was $A3.1b (mkt $A3.25b, TD $A3b) cementing an outsized Q1 trade surplus just shy of $A9b. Subsequently, the Q1 current account deficit is on track to shrink to a tiny –0.2% of GDP and net exports could add around +¼% to Q1 GDP.”

“By country, China surged ahead of Japan to be Australia’s #1 trading partner (although Q1 annualised tends to exaggerate China’s significance). Australia continues to post decent trade deficits against Europe and the U.S.”

“This trade report will soon be forgotten as RBA Governor Lowe speaks about household debt and house prices (rather topical) and tomorrow brings U.S. payrolls (TD +165k, mkt +190k).”

“However, we suspect that when we approach the Q1 GDP release date (June 7) the market’s attention should return again to Australia’s increasingly favourable trade fundamentals.”