Australia Trade Deficit Increases in March, But Exports of Raw Materials Help Cover Machinery Imports

Australia's balance of trade in goods and services moved further into deficit in March as exports declined and imports continued increasing. The overall deficit was A$1,622 million, up from A$728 million in February (seasonally adjusted). The year-ago figure was A$1,241 million.

Australia is a mineral-rich economy. It exports substantial amounts of so-called "crude materials" and has extensive two-way trade in "mineral fuels", running a surplus in that category. (These are SITC commodity groups.) So Australia actually derives some benefit from recent rising oil and commodity prices. See in the table below, where we have added together the exports of these raw materials. They now basically pay for the country's biggest imports, machinery and transport equipment.

Another distinction the mineral resources bring to Australia's trade is the existence of a relatively moderate deficit in trade with China. In 2006, this was A$5.1 billion, or just A$425 million per month; the first three months this year have averaged A$324 million. While trade data by country and commodity are not available to us, it would seem that a good share of Australia raw materials would go to China, covering much of what we assume would be imports of consumer goods.

In contrast, the country runs a sizable deficit with the United States. Exports to the US totaled just over A$10 billion last year and averaged A$757 million the first three months this year. Imports, though, were A$24.5 billion in 2006 and averaged just under A$2 billion a month during Q1 this year. Australia also carries a noticeable deficit with Europe. We assume that the US and Europe are sources for a good portion of its machinery imports. In sharp contrast, Australia runs significant surpluses with Japan and Korea, again, we'd guess as a provider for some of their raw material needs.