Australia trade balance up less than expected in Oct, exports muted

Investing.com--Australia’s trade balance grew less than expected in October as exports picked up only slightly from sharp declines in recent months, while a drop in imports raised some concerns over shrinking domestic demand.

The country’s trade surplus grew to A$7.13 billion from A$6.79 billion in the prior month, data from the Australian Bureau of Statistics (ABS) showed on Thursday. The reading was lower than expectations for a surplus of A$7.5 billion.

The trade surplus picked up slightly after tumbling to an over two-year low in the prior month, with the main source of pressure coming from weakening commodity exports.

Australian exports grew 0.4% month-on-month (m-o-m) to A$45.55 billion in October, recovering slightly after a sharp tumble in the third quarter. Commodity exports- particularly metals and metal ores- remained languid amid weak demand in China, while coal and LNG exports to Asian and European countries also remained weak amid unusually warm weather. 

Thursday's reading comes as weakening economic conditions in China largely dented commodity exports to the mainland. China is Australia’s biggest export market for iron ore and other industrial metals, as well as a slew of consumer goods. 

Trade data from China is due later in the day, and is expected to show some improvement in the country's imports in November.

Australian exports shrank through the third quarter, recent data showed, a trend which weighed on economic growth through the quarter. Data released on Wednesday showed Australia’s economy grew at its slowest pace in over four years during the third quarter. 

Imports fell 1.9% m-o-m to A$38.42 billion in October, with a drop in imports of discretionary goods suggesting that consumer spending was cooling. Imports of consumption goods fell 0.5% m-o-m, having largely stagnated over the past three months. 

Imports of capital goods shrank 11.2% m-o-m, as local businesses also appeared to be cutting back spending on industrial equipment and machinery. 

The drop in imports signaled that Australian consumer and capital spending was cooling steadily amid pressure from high interest rates and inflation. The trend is likely to factor into lower inflation over the coming months, which could in turn elicit a less hawkish stance from the Reserve Bank.