Trade deficit widens on commodities drop

7 Sep 2012, 3:22 pm   -   Source: AAP
Australia's trade deficit widened in July, the Australian Bureau of Statistics reported. (AAP)

Australia's trade deficit widened in July, the Australian Bureau of Statistics reported. (AAP)

Weaker commodity prices have led to a widening of the July trade deficit and it could worsen in the months ahead, economists warn

Australia's trade deficit with the rest of the world has widened and could worsen in the months ahead, as weaker commodity prices begin to show up in official figures.

The balance on goods and services was a deficit of $556 million in July, seasonally adjusted, compared with a revised deficit of $227 million for June.

It was the seventh month in a row the trade figures were in deficit.

Economists' forecasts had centred on a deficit of $300 million for July.

Exports were down three per cent in July, while imports were down one per cent, the Australian Bureau of Statistics said on Friday.

National Australia Bank senior economist Spiros Papadopoulos said falling commodity prices offset an increase in the volume of goods and services exported during July.

"The ongoing fall in commodity prices is really hurting exports and has been the main contributor to deterioration in the month," he said.

Mr Papadopoulos said the Reserve Bank of Australia (RBA) had been aware of weaker export prices for some time, and would probably not cut the cash rate in October from its current 3.5 per cent level.

The RBA last cut the cash rate, by a quarter percentage point in June following a half a percentage point cut in May.

Macquarie senior economist Brian Redican said the trade deficit was expected to widen considerably in coming months.

"It's a touch weaker than expected, but, really, I think this is the calm before the storm," he said.

"The only concern in the month of July was coal exports. But I think it will be August and September's data which will reflect the softness in commodity prices."

Mr Redican said commodity price weakness - particularly for mining investment - would be a key issue concerning the RBA.

CBA senior economist Michael Workman said the trade numbers hinted at a slowdown in China, which would produce further export weakness in coming months.

"Over the near term, risks to the trade balance remain to the downside," he said.

"There are clear signs that the strength of China's economic activity has waned in mid-2012 - it is likely to prompt some more stimulatory action by China's central bank and government authorities in coming months."

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