Australia’s Trade in Goods Account, September
Surplus widens despite resilience in data centre-related equipment imports. Trade balance: $2.8bn surplus. Export values: 2.3%mth. Import values: –3.3%mth.
Australia’s goods trade surplus increased to $2.8bn in September from $0.2bn in August (revised down from $0.5bn previously), well above the market’s expectation for a $1.0bn surplus, even surpassing Westpac’s forecast for a widening to $2.0bn. While the direction was consistent with our expectations, the underlying detail had plenty of surprises.
Trade in non-monetary gold (i.e. gold not held by monetary authorities like central banks) remains a key wildcard in the monthly data, with sharp, unpredictable moves occurring on both sides of the ledger. Recall that Australia not only produces its own non-monetary gold for exports, but it also refines and processes gold that is imported from elsewhere, to be re-exported later. For September, it just so happens that the decrease in gold trade was much sharper on the import side than the export side, contributing to an upside surprise. Looking past the month-to-month noise, the trend for gold trade remains positive as exports outpace imports by a wider margin.
Overall export earnings rose 2.3% ($1.1bn) in September, building on August’s 3.1% increase. Strength was broad-based, with the largest positive contribution coming from other mineral fuels (i.e. LNG) which rose 6.6%, followed by metals excl. non-monetary gold up 23.5%, and metal ores and minerals (i.e. iron ore) up 2.3%. Both price and volume effects were at play for LNG in the month, but the increase in iron ore exports in September looks to be more volume driven. Rural goods exports also bounced back from August’s fall, up 3.6%.
The import bill shrunk by 3.3% ($1.6bn) in September, partially unwinding a 6.2% surge in August. The lion’s share of the fall came from gold imports, which fell 35% ($1.1bn) in the month. Imports of consumer goods were generally softer, again led by non-industrial transport equipment (i.e. cars) which edged another 4.0% lower in September – car imports are now clearly lower than the mid-year burst in EV purchases following the onset of the Middle East conflict, but they are still somewhat elevated. Partially offsetting this was a rise in fuel imports, up 2.3% in the month, which looks to be another price-led move against the backdrop of higher crude oil prices and widening in crack spreads during September.
Perhaps the biggest surprise on the import side, however, was the back-to-back mega prints for automatic data processing (ADP) equipment imports – which capture the investment upswing related to data centres – $4.3bn in August, followed by $4.4bn in September. To be sure, the underlying trend in these imports is not surprising to us – our estimates have the data centre project pipeline at around $175bn over the coming decade, with much of that being front-loaded. The surprising element was the fact that this showed up in the data as bumper reads in consecutive months – we just expected a bit more month-to-month volatility.
Importantly, this puts the ADP equipment imports at $11.1bn in Q3, above Q1’s $8.1bn when the first real big ‘surge’ in the data emerged. The upshot is that the official activity data for Q3 will highlight an impressive scale of the data centre build out in Australia, which will once again show up as a surge in both business investment and imports. While the net effect on GDP will be smaller, it is by no means negligible – the RBA expects around 30% of data centre-related investment will be domestically-sourced, similar to our earlier modelling which suggested the local economic impact could be around half of the total investment, after considering spillovers into other sectors.
For Q3 as a whole, export earnings rose 1.8% and the import bill increased 0.7%, widening the goods trade surplus from $1.2bn to $4.5bn. In real terms, however, goods trade looks closer to stable. Export prices rose 1.4%, suggesting most of the increase in export earnings was price driven. Import prices meanwhile fell 1.1%, suggesting the rise in the import bill was mostly driven by higher volumes.
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