Australia's Trade Surplus Unexpectedly Widens on Coal

By Jacob Greber

Nov. 5 (Bloomberg) -- Australia's trade surplus unexpectedly widened in September as exports of coal and iron ore surged.

The surplus increased to A$1.46 billion ($1 billion) from a revised A$1.24 billion in August, the Bureau of Statistics said in Sydney today. The median estimate of 15 economists surveyed by Bloomberg News was for a A$500 million surplus.

Exports are offsetting a slump in consumer and business spending that threatens to tip Australia's economy into a recession. Central bank Governor Glenn Stevens cut the benchmark interest rate yesterday by three quarters of a percentage point to a 3 1/2-year low of 5.25 percent after reports showed house prices fell in the third quarter by the most since 1978.

The ``trade surplus is the one bright light for the economy,'' said David de Garis, a senior economist a National Australia Bank Ltd. in Sydney.

``With domestic demand soft and import demand wilting, it will likely stay that way with net exports likely to soften the blow from a weakening'' local economy, he said.

Australia's dollar has tumbled 30 percent since hitting a 25-year high of 98.49 U.S. cents on July 16, helping boost income from exports of raw materials.

The local currency traded at 69.04 U.S. cents at 12:46 p.m. in Sydney from 69.19 cents just before the trade report was released. The two-year government bond yield fell 1 basis points, or 0.01 percentage point, to 3.96 percent.

Coal, Iron Ore

Exports rose 8 percent to A$26.5 billion in September, today's report showed. Shipments of metal ores including iron surged 19 percent and coal gained 14 percent.

Imports climbed 7 percent to A$25 billion, led by a 7 percent increase in food shipments.

Households cut spending in the three months through June 30 for the first time since 1993 as economic growth slowed to 0.3 percent, the weakest pace in more than three years.

Reserve Bank Governor Stevens has slashed the overnight cash rate target since the start of September by 2 percentage points, from a 12-year high of 7.25 percent. It is the most aggressive round of rate reductions since the economy was last in a recession in 1991.

Weighing up international and domestic developments, the central bank ``board judged that a further significant reduction in the cash rate was warranted,'' Stevens said yesterday.

Commodity Prices

``It appears likely that spending and activity will be weaker than earlier expected,'' he added.

Stevens also signaled that he expects income from trade, which has helped stoke Australia's 17-year economic expansion, to slide in coming months.

While the central bank's recent rate reductions will assist growth in the period ahead, ``deteriorating international conditions and falling commodity prices will have a dampening influence,'' Stevens said.

``There have been further signs that China and other parts of the developing world are slowing as well,'' he added.

The Reuters/Jefferies CRB Index of 19 raw materials plunged 22 percent in October, the biggest monthly drop since at least 1956. Copper fell by a record 36 percent, and gold dropped by the most in 26 years.

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net