Australia’s Q1 2018 current account deficit narrows significantly, likely to be positive for economic growth

Australia’s current account deficit narrowed in Q1, driven by the significant improvement in the trade balance. This improvement is reflected in the turnaround in the contribution that net exports will make to GDP – from a significant drag to a material boost.

Australia’s current account deficit (CAD) narrowed significantly to AUD10.5 billion in Q1 2018. The improvement was in line with our expectations. This equates to a little bit more than 2 percent of GDP, the smallest deficit since Q1 2017.

The driver of the smaller deficit was the improvement in the trade balance, which shifted from a deficit of $1 billion in Q4 2017 to a surplus of just over $4 billion in Q1 2018. This $5 billion improvement was partly offset by the deterioration in the income balance of just over $1 billion.

Export volumes rose 2.4 percent q/q, led by a jump in exports of resources (6.2 percent q/q). Rural export volumes fell 4.8 percent q/q. Export services volumes rose 0.7 percent q/q.

Import volumes rose by 0.5 percent q/q. The strength was in capital goods imports, where volumes were up 4.3 percent q/q. Machinery and industrial equipment import volumes were up 12 percent in the quarter. Industrial transport volumes were up 27 percent in the quarter. The volume of consumption good imports fell 0.3 percent q/q. The volume of service imports was down 2.1 percent q/q.

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