Trade balance drops into deficit

Australia posted its first trade deficit for nine months in April following the
biggest monthly export slump in almost 12 years as the global recession led to sharp
price falls for iron ore and coal exports, economists say.
The nation's balance of goods and services fell by $2.393 billion to record a $91
million deficit, the Australian Bureau of Statistics (ABS) said on Thursday.
It was below the financial market's forecast for a $1.4 billion surplus.
In April, exports slumped 11.3 per cent, the biggest monthly drop since July 1997.
ANZ economist Alex Joiner said the trade deficit was driven by a slump in export
values as the ABS accounted for the anticipated price decrease in iron ore contracts
from April 1.
The ABS said volumes for iron ore exports fell one per cent in April, while prices
were down 22 per cent.
"This fall in export values has been a long time coming with commodity forecasters
knowing some time ago that, amidst weak global conditions, commodity importers
(China in particular) were always going to play hard ball on bulk commodity prices,"
Dr Joiner said.
"This is especially true after being stung by massive increases in bulk commodity
prices at the peak of the boom in 2008 negotiations," he said.
Mining giant Rio Tinto settled on a 33 per cent fall in iron ore prices with
Japanese steelmakers last month.
The value of Australia's most valuable export, coal, fell $619 million, or 15 per
cent, following sharp falls in prices despite volumes rising in April, the ABS said.
Exports of non-monetary gold fell $783 million, or 37 per cent, in the month.
Imports fell 1.7 per cent, dragged lower mostly by a 32 per cent decline in
non-monetary gold.
RBC Capital Markets senior economist Su-Lin Ong said the global recession was
starting to affect the local economy, which was reflected in April's trade deficit.
"The terms of trade are just starting to fall, with today's trade data confirming
another likely large drop in the second quarter of 2009 with export income easing
further," Ms Ong said.
"This will have a further knock-on impact to business investment, which has also
just started to contract.
"The impact upon output and employment has yet to have been felt."
Royal Bank of Scotland senior economist Felicity Emmett said weaker exports, and
trade deficits, were likely to continue as contract prices for coal and iron ore
come into effect.
"We're likely to see larger deficits and the trade balance continue to deteriorate,"
Ms Emmett said.