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UPDATE 1-Australia celebrates record trade surplus as exports boom

Published 02/02/2017, 01:25 pm
Updated 02/02/2017, 01:30 pm
© Reuters.  UPDATE 1-Australia celebrates record trade surplus as exports boom

* Dec trade surplus jumps to A$3.5 bln, smashes forecasts

* Shrinking current account deficit lessens risk of ratings cut

* Economy looks to have rebounded after Q3 contraction

* Approvals to build new homes dip 1.2 pct as market cools (Adds GDP quote, exports to China)

By Wayne Cole

SYDNEY, Feb 2 (Reuters) - Australia boasted its biggest trade surplus on record in December as surging commodity prices showered the resource-rich nation in cash, a windfall that could lessen the risk of a downgrade to its triple A credit ratings.

Thursday's data from the Australian Bureau of Statistics showed a trade surplus of A$3.51 billion ($2.67 billion) in December, handily outpacing forecasts of A$2.2 billion.

The previous month was also revised up sharply to A$2.0 billion, a double win that lifted the local dollar a quarter U.S. cent to $0.7624 AUD=D4 .

Exports jumped by 5.3 percent to a record A$32.6 billion, led by double-digit gains in coal and iron ore, while imports edged up only 0.7 percent.

China was the standout customer as exports surged 28 percent to top A$10 billion for the first time ever.

For the December quarter as a whole, the country notched up a surplus of A$4.8 billion in a startling turnaround from the previous quarter's A$3.8 billion shortfall.

That will also sharply shrink the fourth-quarter current account deficit, a timely improvement given S&P Global Ratings has cited a reliance on foreign funding as one reason it might cut Australia's top credit rating.

"The current account deficit is the mirror image of our borrowing from the rest of the world," said CBA chief economist Michael Blythe. "The implication is that our reliance on the savings of the rest of the world should decline."

"These developments should feed into the debate about the sustainability of Australia's AAA rating in a positive way."

ECONOMIC REBOUND

The rush of export earnings will ripple through the economy via higher profits, incomes and tax receipts, likely ensuring a rebound in gross domestic product after a shock 0.5 percent contraction in the third quarter.

"This contribution and an expected bounce back from the weather-affected Q3 figure suggests a Q4 GDP outcome in the order of 1 percent or higher," said Tapas Strickland, an economist at NAB.

"That should eliminate any fears out there that Australia was at risk of recording a 'technical recession'."

It would be a welcome source of support given another engine of growth - residential construction - looks to be near a peak.

A separate report out on Thursday showed approvals to build new homes dipped 1.2 percent in December, the fourth fall in five months.

"After housing activity rose consecutively for four years, its longest ever boom, we now think that it has probably already peaked at over 6 percent of nominal GDP," said George Tharenou, an economist at UBS.

If that view isright, home building could make little net contribution to economic growth over all of 2017, having added half a percentage point last year. ($1 = 1.3127 Australian dollars)

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