Gillard still welded to surplus promise

Prime Minister Julia Gillard remains determined to deliver a budget surplus in the 2013 election year, despite ongoing signs of a sluggish economy.

The federal government believes the economic fundamentals remain strong, but admits there's downward pressure on corporate tax receipts due to weaker commodity prices and a high Australian dollar.

"Our last economic update had us at trend growth and that's why the last economic update had us with a surplus," Ms Gillard told ABC radio on Friday.

"We are still determined to deliver the surplus."

But shadow treasurer Joe Hockey said figures this week showing the economy expanded by just 0.5 per cent in the September quarter - for a sub-trend annual growth 3.1 per cent - undermines the prime minister's surplus commitment.

"Ever since the mid-year budget update the prime minister and the treasurer have been crab-walking away from their 2012/13 surplus promise," he said in a statement.

"Time and again they have refused to repeat their guarantee to deliver a surplus this financial year."

Opposition Leader Tony Abbott believes the government is building up to dump the projected $1 billion surplus.

"Yet another broken promise from a government which is just incompetent and untrustworthy to its core," he told reporters in Toowoon Bay, NSW.

However, the Australian Greens would welcome the government dropping the surplus and leaving the budget in deficit.

"You would be hard pressed to find an economist that says a surplus is a good idea," Greens senator Larissa Waters told reporters in Canberra.

"A surplus delivered off the back of single parents, off the back of an underfunded NDIS that won't start for years, that's not a surplus that benefits Australians."

The latest international trade figures for October released on Friday reflect the challenges facing the economy.

Australia's trade position deteriorated as lower commodity prices, particularly for coal products, and a high Australian dollar constrained export earnings.

The goods and services balance widened to a $2.09 billion deficit in October, from a downwardly revised $1.42 billion shortfall in September, marking the biggest seasonally adjusted trade gap since March 2008 when the global financial crisis hit.

The value of imports rose three per cent, but exports were flat and fell 9.5 per cent over the year, creating ramifications for the nation's terms on trade.

RBC Capital Markets strategist Michael Turner said the national accounts report released on Wednesday showed income measures were uniformly weak in the September quarter as a result of the four per cent fall in the terms of trade - which was almost 14 per cent lower over the past year.

"The early data for (the December quarter) suggest more of the same ahead, as activity shifts to a sub-trend pace," he wrote in a client note.

Capital imports rose by 13 per cent in October as business took advantage of the continuing strength of the dollar, while the currency dampened export revenue.

The Reserve Bank of Australia cut the cash rate again this week in anticipation of these dynamics.

"We think the adjustment process throughout the economy will require a lower cash rate still," Mr Turner said.

Market Data

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    0.9327-0.0005-0.05%
    AUDUSD=X
    0.5555-0.0003-0.05%
    AUDGBP=X
    0.6753-0.0003-0.05%
    AUDEUR=X
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