Aust has biggest trade deficit since 2008

Falling commodity prices and the persistently high Australian dollar have driven Australia to its biggest trade deficit in more than four years.

The trade deficit widened to $2.088 billion in October seasonally adjusted, due to flat exports and a three per cent rise in imports, the Australian Bureau of Statistics said.

The result was the worst since March 2008, when the trade deficit blew out to $2.746 billion.

CommSec economist Savanth Sebastian said the October figure was the tenth consecutive monthly trade deficit and showed the impact of lower commodity prices and high Australian dollar.

"Lower commodity prices are the key driver and also you are continuing to see imports out-pace exports, so the strength of the Aussie dollar is also a big driver," he said.

He said the latest figures would add to the case for further interest rate cuts in 2013.

The Reserve Bank of Australia cut the cash rate to three per cent at its December board meeting on Tuesday.

"It justifies the rate cut we had on Tuesday and if anything means the RBA can afford to allow the household sector a little more room to swing their arms over the coming year," Mr Sebastian said.

Exports were unchanged in October and imports rose three per cent.

RBC Capital Markets fixed income strategist Michael Turner said the trade data suggested the weaker economic growth seen in September quarter was likely to continue.

"The early data for the fourth quarter suggest more of the same ahead as activity shifts to a subtrend pace," he said.

"Capital expenditure - whilst set to slow in 2013 - is still running at a decent clip and likely to keep demand for imports at a reasonable level whilst the high level of the Australian will keep export revenue dampened.

"The RBA has already eased the cash rate in anticipation of this, though we think the adjustment process throughout the economy will require a lower cash rate."

Mr Turner said one positive factor for exports was higher agricultural prices.

He also noted the jump in imports were mainly in the capital equipment category.

National Australia Bank senior economist Spiros Papadopoulos said the trade figures were slightly better than the market expected but still showed a significant deterioration.

"The trade figures once again just show that our export sectors continue to struggle with the high Australian dollar," he said.

"Our trade position is continuing to deteriorate on the back of weaker commodity prices and the high Australian dollar impacting on our export sector."

The widening of the trade deficit also reflects lower global demand for commodities.

"As the global economy remains fairly soft, we're not seeing the volume and value growth that we were seeing earlier in the year," Mr Papadopoulos said.

"Our export sectors remain under the pump at the present time."

Market Data

  • Currencies
    Currencies
    NamePriceChange% Chg
    0.9298+0.0011+0.12%
    AUDUSD=X
    0.5538+0.0003+0.06%
    AUDGBP=X
    0.6726+0.0005+0.07%
    AUDEUR=X
  • Commodities
    Commodities
    NamePriceChange% Chg