A sharp fall in commodity prices has dragged Australia’s trade balance deeper into the red, where it’s expected to stay for most of the next two years.
The trade deficit widened to $2.027 billion (seasonally adjusted) in August, from a $1.53 billion deficit in July, as iron ore and coal prices plummeted, figures released by the Australian Bureau of Statistics today show.
It was the biggest trade deficit since March 2008 and a $4.8 billion turnaround from the same time in 2011, when Australia had a healthy trade surplus of $2.782 billion.
Commodity prices fell to a 20-month low in August, according to the Reserve Bank of Australia, driven largely by a 35 per cent fall in iron ore prices and 25 per cent fall in coal prices between mid July and early September.
Commonwealth Bank economist Diana Mousina said the fall in prices accounted for almost all of the drop in the value of Australia’s exports in August.
“On our calculations, around 93 per cent of the fall in goods exports was due to lower export values of iron ore and coal,” she said.
Since their peak in 2011, iron ore prices have fallen from more than $US180 a tonne to $US90 a tonne in the past two months, before stabilising around the $100 a tonne level in recent weeks.
However, JP Morgan economist Tom Kennedy said strong demand for imports, especially equipment and machinery shipped in from overseas for use in new resource projects, was also a major contributor to the deficit.
He said the trade balance was likely to remain in deficit until Australia’s mining boom switched from stage two to three - from the so called investment stage to the production stage - around 2014.
“Once you see the peak in resource investment you are going to see your imports, particularly capital imports start to decline, which bodes well for the external accounts,” he said.
“Then as we enter the final stage of the mining boom and you will see coal, iron ore and LNG exports start to ramp up as output from those mines gather momentum.”