Australia’s trade deficit narrows

Australia's trade deficit in February narrowed more than expected as exports rose to the second highest on record, driven by sales of farm goods and rising tourism earnings.

The deficit narrowed to A$2.18 billion ($2.37 billion), a five-month low, from a revised A$2.27 billion in January, the Australian Bureau of Statistics said.

Exports gained 1 per cent, the third monthly increase. Imports rose 0.4 per cent.

Central Bank Governor Ian Macfarlane has been counting on rising exports to fuel growth in Australia's A$798 billion economy as home building falls and consumer spending slows. Increased demand for exports will drive earnings at firms including Queensland Sugar and may add to expectations the central bank will raise interest rates.

Eighteen of 23 economists surveyed forecast the bank will raise the cash rate target a quarter point to 5.75 per cent when it announces a decision today. The bank raised the rate for the first time in 15 months in March to 5.5 per cent.

Exports rose in February to A$13.67 billion, the highest since September 2000. Exports of rural goods, such as meat, sugar, wheat and wool, surged 7 per cent.

Exports of services, which includes tourism, rose 2 per cent. Exports of non-rural goods declined 1 per cent from January.

"It seems that net exports might make a small positive contribution to gross domestic product growth in the first quarter," said Stephen Koukoulas, chief Asia-Pacific strategist at TD Securities.

"If so, it will be the first contribution to GDP in three years from net exports."

The economy, the fifth-largest in the Asia-Pacific region, expanded just 0.1 percent in the fourth quarter, the slowest pace in four years, as home building fell and consumer spending slowed.

Australia's trade deficit peaked at a record A$2.76 billion in April 2003. February's shortfall extends the nation's run of trade gaps to 40 months, the longest since the 56 months ended February 1985.

Contract prices for coking coal and iron ore, Australia's two biggest commodity exports by value, are at records.

BHP Billiton will increase prices by 120 per cent to $125 a ton for coking coal for delivery from April 1, it said on February 16. Rio Tinto said on February 23 it will raise the price of iron ore sold to Nippon Steel Corp. by a record 71.5 per cent because of increased demand from China.

Australia's imports rose to A$15.85 billion in February.

Imports of consumer goods declined 2 per cent. Imports of capital goods, including business machinery, gained 6 per cent from January.

Imports of intermediate goods, which include oil and spare parts, dropped 1 per cent.

- BLOOMBERG