Australia's trade deficit widened by a surprisingly big margin in February but largely because healthy domestic demand sucked in imports, underlining the country's relative resilience. The data did little to change a belief that the economy was set for a bonanza year as export prices for iron ore and coal surge, which would bolster Prime Minister Kevin Rudd's popularity while maintaining pressure for interest rates to rise further.
"Today's deficit shows a deterioration in the monthly trade position, though recent commodity price settlements suggest that over the coming six months this should improve significantly," said Scott Haslem, an economist at UBS. The shortfall in international trade in February widened to A$1.92 billion ($1.76 billion), bigger than forecasts for a A$1.3 billion gap.
Sales abroad were weighed by a 28 percent drop in the typically volatile gold refining business, and a 12 percent fall in coal exports. Imports, on the other hand, were lifted by firm demand for cars, machinery and industrial equipment. In the near term, the drag from net exports may mean Australia's economy grew 0.6 percent in the first quarter, down from 0.9 percent the previous quarter, Haslem said. But over the course of the year, the trade deficit should narrow, and perhaps even turn into a surplus, as a recovering world economy raises demand for and prices of iron ore and coal, Australia's top export earners.
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