You are using an older browser version. Please use a supported version for the best MSN experience.

Drop in oil prices slashes trade deficit

AAP logoAAP 6/10/2016 Marty Silk

A big drop in the cost of oil and capital goods imports has helped cut the trade deficit to $2.01 billion, and rising coal prices could slash it even further, economists say.

Both imports and exports were steady in August, but the deficit shrank from $2.1 billion in July, according to the Australian Bureau of Statistics.

The bulk of that improvement was due to a fall of 0.4 per cent in the value of imports in August.

In particular, oil imports fell 14 per cent and capital goods, products used in the production of other goods, fell one per cent.

It is now likely that net exports will no longer be a drag on third quarter gross domestic product, much better than the 0.5 percentage point drag previously expected, Capital Economist chief economist Paul Dales said.

"Whereas we previously thought that the quarterly rate of GDP growth would slow from the second quarter's 0.5 per cent, we now think there's a good chance that it accelerated," he said.

ANZ economists noted services exports had been particularly strong in August, rising one per cent, indicating the higher Australian dollar was not as much of a drag on exports as had been predicted.

"Services exports, which are dominated by tourism and education exports, have been on a strongly rising trend for four years now, and today's data suggest there is still considerable momentum in the sector," they said in a note.

UBS economists said a massive spike in coal prices means export values will likely surge in September and October as well, which would sharply narrow the trade deficit, though the extent was hard to quantify.

"The price spike, if sustained over coming months, could potentially be large enough to wipe out the overall trade deficit by itself," they said.

image beaconimage beaconimage beacon