Aust headed for Q1 current account surplus

Economists say Australia will likely post a current account surplus in the first quarter of 2017 calendar year, but it won't last long.

Booming coal and iron ore prices are highly likely to lift Australia to its first current account surplus since the 1970s in the current quarter, economists say.

The current account deficit narrowed by 63 per cent to $3.85 billion in the December quarter, to its lowest level in 16 years, according to the Australian Bureau of Statistics.

The main driver was soaring commodity prices - mainly coal and iron ore - that boosted the prices of exports compared to the price of imports by 9.1 per cent.

That lifted the surplus on the country's goods and services trade by 49 per cent, or $700 million, to $2.1 billion.

Commonwealth Bank senior economist John Peters said the current account balance will further narrow, with a surplus highly likely in the current quarter, as soaring commodity prices pass through to actual export contract prices.

"The fourth quarter current account deficit came in at less than 1.0 per cent of GDP, with a current account surplus now tantalisingly close," he said in a note.

"Wherefore art thou now Banana Republic? The current account deficit was about 8.0 per cent of GDP in the mid-1980s, when then Treasurer (Paul) Keating likened Australia to a Banana Republic."

The ABS said the big rise in the trade surplus would add 0.2 percentage points of GDP growth in the fourth quarter.

However Royal Bank of Canada analyst Michael Turner noted one big driver of the trade accounts turnaround, coal prices, had begun to slide already and the other, iron ore prices, would eventually do the same.

"While the terms of trade are starting at a higher point than we assumed, we still expect them to fall over coming quarters, before bottoming out by around 2019," Mr Turner said in a note.

"Real growth over this period should continue to benefit from the uplift in LNG production, with net exports accounting for more than half of the growth we expect over the next couple of years."