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Current account deficit lowest in 2 years

AAP logoAAP 6/12/2016

Stronger commodity prices pushed Australia's current account deficit to its lowest level in two years in the September quarter, but rising import volumes likely weighed on economic growth.

The deficit was $11.3 billion in the September quarter, according to seasonally adjusted figures from the Australian Bureau of Statistics.

That's almost 30 per cent lower than the $15.9 billion current account deficit recorded in the June quarter, and below the $13.5 billion level forecast by the market.

UBS economists said the result was primarily driven by rising commodity prices, particularly metal ores such as iron, and coal.

Australia's terms of trade, or index of export prices compared to import prices, also jumped 4.5 per cent in the quarter.

JP Morgan senior economist Tom Kennedy said the upside surprise on the balance of payments owed to a combination of a smaller than expected trade deficit, as well as a further reduction in the primary income deficit.

"Not surprisingly, the better than expected outcome on trade is a price, rather than volume phenomenon, with nominal export growth easily outpacing volumes," he said in a note.

"This was borne out in Australia's key commodity export groups, most notably iron ore and LNG where volumes fell 2.0 per cent and 1.0 per cent, respectively ... Given the ongoing rally in coal prices, and to a lesser extent iron ore, so far in the fourth quarter our base case is for Australia's trade deficit to narrow further into year-end."

Westpac economist Andrew Hanlan said noted that trade volumes, with import growth strongly outstripping export growth, were a downside surprise.

The surplus on goods and services fell by $871 million in the quarter, which had a negative impact on growth in the September quarter measure of gross domestic product (GDP), the ABS said.

"Net exports have been trending higher. However, not so in mid-2016," Mr Hanlan said in a statement.

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