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Australia trade balance trounces expectations in Nov as imports tumble

Investing.com-- Australia’s trade surplus grew far more than expected in November, with a mild increase in exports coming amid a sharp drop in imports as high interest rates and sticky inflation weighed on domestic demand.

The trade balance surged to a surplus of A$11.44 billion ($7.67 billion), data from the Australian Bureau of Statistics (ABS) showed. The reading was well above expectations of A$7.5 billion and rose sharply from October’s surplus, which was revised to A$7.66 billion from A$7.13 billion.

Exports rose 2.4% month-on-month, aided by a recovery in shipments of coal, mineral fuels, and most importantly, metal ores and minerals- which are Australia’s top exports. Inventory refreshment and increased winter demand for heating fuels in the country’s top export destinations in Asia and Europe were a major driver of the increase in exports.

Still, Australia’s overall exports remained well below a peak hit in mid-2022, as warmer weather conditions and dwindling metal demand in top market China continued to weigh.

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China has become a major point of contention for Australian commodity exporters, as a sluggish economic recovery in the mainland spelt weaker demand.

But November’s sharp increase in the trade surplus was driven chiefly by a 7.9% month-on-month drop in imports, with consumption goods- which comprise of retail goods such as food, automobiles and leisure goods- seeing a 14% month-on-month decline.

The drop came amid increasing pressure on consumer spending from high interest rates and relatively sticky inflation, with a reading on Wednesday showing inflation remaining well above the Reserve Bank of Australia’s 2-3% annual target.

The RBA hiked interest rates to decade highs in order to curb high inflation. But the move severely dented household saving rates, which in turn dissuaded spending.

Slowing business spending also saw capital good imports fall 2.8% in November, as Australian economic activity cooled through 2023.

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