Trade Data Hides Fall in Aggregate Demand

Data out yesterday for Australia’s trade balance beat market expectations but the headline numbers hid a collapse in economic activity.

Another near record trade surplus print of $8.8bn on the face of it, is a strong positive for the economy but a closer look at the granular data showed falls in both export an imports. For a metric that relies on the difference between exports and imports, when both fall the net result can hide the changes. The granular data showed exports for April fell 11.3% and imports were down 9.8%. Whilst neither of those in their own right are a surprise with borders shut and economies around the globe still either in lockdown or slowly reopening, the implications for the medium term economic outlook are concerning.

The export story painted a picture of global production at a standstill. Exports of rural goods maintained long term average levels with unchanged requirements for foodstuffs but non-rural goods (ores and fuels) fell. Whilst prices remained soft it was the fall in export volumes that lead to the decline in value exported.

On the import front, services were near wiped out. Unsurprisingly only $41M of value entered the Australian Economy in April from the travel sector. To put that in perspective, even in march with most of the lockdown in place the travel sector accounted for $2.4B. The March 2019 figure sat at $4.2B. Imports of services as a whole were down 42% month on month reflecting a domestic economy struggling to get out of first gear.

The RBA has indicated for some time now that for many data series including trade to return to a level somewhat reflecting normal that fiscal policies will have to bear the weight. That they themselves have run out of road.

The same cannot be said for the ECB who last night reloaded their ‘Economic Bazooka’ and fired. The European bank announced another phase in their Pandemic Emergency Purchasing Programme at a cost of 600 billion euros. That brings their total to 1.3 trillion euro or just over 2 trillion if we took that figure in Australian dollars or very roughly 7% of the GDP of Europe.

Matthew Dunshea