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Friday, December 16, 2011

Australia trade surplus narrows as iron prices cut exports

Friday, 16 Dec 2011

Australia's trade surplus was narrower than expected in October as the mining boom continued to suck in more imports while weaker iron-ore prices held exports back.

Australian Bureau of Statistics said that the trade surplus of AUD 1.6 billion in October compared with AUD 2.25 billion in September. It said that economists had expected AUD 2 billion surplus. Imports rose 2% over the month, while exports were flat.

Economists said the trade surplus would eventually improve as a boom in mining investment lifts the output of iron ore, coal and natural gas, the country's biggest exports. But for now there are headwinds, as the capital equipment needed to build the many projects springing up across the country must be imported from overseas.

Kieran Davis chief economist at RBS Australia said that "The outlook for the trade balance remains positive given the massive expansion of capacity under way in the mining sector, although in the short term the surplus may shrink further, reflecting lower commodity prices and strength in imports.”

Australia terms of trade remain near record levels, prompting miners and energy providers to roll out AUD 450 billion (more than 30% of national output) in new investment projects, many of which are already under way.

Business investment data for the third quarter indicated that the full force of the investment boom is beginning to be felt across the economy.


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