Floods likely to worsen shrinking trade surplus

Australia's trade surplus narrowed in November as the value of coal exports dropped, and economists say it may deteriorate further as floods in Queensland shut mines and ruin crops.

The excess of exports over imports totalled A$1.93 billion ($2.4 billion), down from a revised A$2.56 billion surplus in October, the Bureau of Statistics reported yesterday.

Citigroup economists said flood damage to coking coal mines, agriculture and infrastructure could cut exports by more than A$1 billion ($1.3 billion) a month.

Australia's dollar fell to a three-week low against the greenback on concern the floods will slow the economy by hurting exports, which account for about one-fifth of GDP. Investors are cutting bets the Reserve Bank of Australia will raise interest rates in the first half of this year.

"The likelihood that the floods will impact exports from January 2011" makes the case "more compelling for the RBA to leave monetary policy at its current setting for at least a few more months", Paul Brennan, an economist at Citigroup in Sydney, wrote in a research report.

He said "there will be some offset from higher commodity prices as a result of the reduced supply of the affected commodities".

Total exports were little changed at A$24.4 billion in November, yesterday's report showed, as shipments of ores and minerals gained 5 per cent and gold dropped 21 per cent. Coal shipments fell to A$3.55 billion from A$3.85 billion a month earlier.

Imports increased 3 per cent to A$22.5 billion, including a 16 per cent gain in fuels and lubricants. Imported civil aircraft rose by A$343 million.

The November trade report "pales in significance to the supply shock that looms over the coming months' data", Ben Jarman, of JPMorgan Chase in Sydney, wrote after the release.

"The flooding in Queensland has left many coal mines underwater; it is unclear how long it will take for production to come back online."

Shipping delays may reduce the effects of what the RBA has termed "a large expansionary shock" from trade last year that drove the local currency to parity with the US dollar.

RBA governor Glenn Stevens raised rates by a quarter percentage point on November 2, the seventh increase since October 2009, before keeping borrowing costs unchanged on December 7. Higher rates helped to slow third-quarter growth and savings have risen, even as energy and mining investments keep unemployment near 5 per cent.

Traders are betting Stevens will not raise rates before the May policy meeting at the earliest, when there is a 6 per cent chance of an increase, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange. The RBA's next scheduled meeting is on February 1.

The floods may weaken GDP growth and drive up food prices, complicating RBA efforts to steer policy during a mining investment boom.

Stronger demand for skilled workers at projects such as Chevron's A$43 billion Gorgon liquefied natural-gas project, under construction in Western Australia, threatens to stoke wage growth and inflation.

BG Group, Chevron, Royal Dutch Shell and ConocoPhillips are among companies planning to invest about A$200 billion in proposed liquefied natural gas projects in Australia.

A private report yesterday showed Australian job advertisements rose in December for an eighth month.

Jobs advertised in newspapers and on the internet advanced 2 per cent from November, when they increased a revised 3 per cent, according to an ANZ Banking Group report released in Melbourne.

Australian employers probably added 25,000 workers in December and unemployment fell to 5.1 per cent from 5.2 per cent, according to a separate Bloomberg News survey ahead of a report due tomorrow.

Australia's economic growth slowed to 0.2 per cent in the third quarter from three months earlier, the weakest performance since the end of 2008.

- Bloomberg