Trade balance swings to surprise surplus .

Australia has reported its first trade surplus in 13 months in April as booming exports of iron ore and coal helped lift earnings by over $2 billion, a dramatic turnaround that is set to fuel economic growth this year.

The balance on trade swung to a surplus of $134 million in April, handily beating forecasts of a $500 million deficit. That was a massive improvement from March's $2.04 billion shortfall and helped lift the Australian dollar.

The upbeat outcome also supports the Reserve Bank of Australia's (RBA) confidence that surging terms of trade will deliver healthy economic growth this year, even as financial markets succumb to fears about the global outlook.

More to come

Nomura Australia chief economists Stephen Roberts, who forecast a surplus, said it was the start of a series of surplus’ to come.

‘‘It implies we will get a lift in the national accounts,’’ he said.‘‘We might see an international trade surplus for the June quarter.

‘‘There’s more to come in the next couple of months.’’

Investors reacted by pushing the Australian dollar up to $US0.8460 while scaling back any prospect of an emergency cut in interest rates in the coming months.

The central bank held rates steady at 4.5 per cent at its June policy meeting this week, having already lifted them six times in eight months, but only committed to a pause in the "near term."

Scant chance of rate rise

Investors are still pricing in scant chance of another rate rise this year, but many analysts suspect one or even two hikes are possible if trade boom unfolds as expected.

CommSec economist Savanth Sebastian said the trade figures would not add pressure on the Reserve Bank of Australia to lift the cash rate further.

‘‘There’s been enough data recently to show the Australian economy is stalling,’’ he said. ‘‘We won’t see the impact of trade on the economy until early 2011.

‘‘The RBA has done enough, they can stay out of the lime light for the mean time.’’

Australia's terms of trade - what it gets of exports compared to what it pays for imports - climbed 4.2 per cent in the first quarter alone and could rise 20 per cent this year.

That in turn will shower money on the economy via higher profits, investment, wages and tax receipts.

"Today's data provide a reminder of one of our long held themes which we continue to think will underpin above trend growth going forward," said Su-Lin Ong, a senior economist at RBC Capital Markets.

"The recovery in the terms of trade which began in late 2009 is accelerating and will deliver a strong boost to income and demand, assisting in some rotation of growth away from public spending to firmer private sector demand."

Consumers certainly seemed to be confident enough to splash on big-ticket items, with industry figures out Thursday showing sales of new vehicles hit a record for May.

Thank Asia

Australia's exports of goods and services rose 10.7 per cent overall in April to $22.67 billion, while imports were flat at $22.53 billion. Exports of metal ores and minerals jumped 25 per cent, largely thanks to a 29 per cent increase in prices.

Coal exports jumped 40 per cent with volumes recovering by a hefty 26 per cent.

Those gains owe much to insatiable demand from China and India where the industrialisation of over two billion people requires huge increases in infrastructure and energy output. Some commodity prices had taken a hit in the last few weeks amid a global flight from risk. Investors have also been anxious that China's efforts to cool its housing market could slow the whole economy, and thus temper demand for resources. Yet, so far, the price of Australia's key exports coal and iron ore have proved resilient.

Just this week miner BHP Billiton And Japanese steelmakers agreed on a 12.5 per cent hike in the price of coking coal for the July-September period, from the previous quarter. That represented a 75 per cent rise from a year earlier for the key ingredient used in steelmaking.

The RBA reported that its index of Australian commodity prices climbed to a 19-month high in May. The index is now up 44 percent from lows touched in May last year and not far from record territory.

The recent sharp decline in the Australian dollar will also be a relief for manufacturing exporters, and is even a positive for mining earnings since so many commodities are priced in US dollars. The local currency fell 10 per cent against its US counterpart last month.


Source :-  theage.com