Australia's Q3 GDP likely to post 0.7% growth

Australia's trade deficit contracted by some $0.4bn to $2.3bn in September, from a $2.7bn deficit in August (revised lower from -$3.1bn).The September outcome is more than expected, largely due the lower starting position.

Export earnings of the economy recovered a further 3.4% in September, on a lower dollar and higher volumes, extending the bounce off the low of May. Imports, in contrast, rose 1.7% in the month as the currency slumped, down 3% against both the U.S. dollar and on a TWI basis.

The key take-out is the narrowing of the trade deficit in the third quarter on a rebound in exports. The deficit was $7.5bn in Q3, having more than doubled to $10.6bn in Q2.

The smaller trade deficit was despite a further slide in Australia's terms of trade, down an estimated 1.5%, to be around 30% below the peak of four years ago.

Net exports, having surprised in Q2 with a sizeable subtraction of 0.6ppts, will make a hefty positive contribution in Q3, potentially adding 1.0ppt. Volatility in resource exports is central to this uneven profile.

For Q3 GDP, the quarterly forecast has been revised to 0.7% from 0.5%, but annual forecast remains 2.1%, with an offset from a likely downward revision to history, says Westpac.