Trade deficit blows out: What it means for SMEs

Australia’s trade balance has swung to its worst deficit in almost one-and-a-half years, official data shows.

According to figures from the Australian Bureau of Statistics, the nation’s trade deficit widened to $1.911 billion in May on the back of falling iron ore prices.

This is an increase of $1.1 billion on April’s deficit and Australia’s worst trade result since January 2013.

The swing was driven by a $760 million fall in metal ore and mineral exports.

That left total exports down by 4.6% compared with the previous month.

Alan Oster, chief economist at the National Australia Bank, told SmartCompany the blowout in the trade deficit could have a flow-on effect.

“It will have wider implications as there is less income flowing through the economy than some of us thought,” he says.

“The Australian economy is very much a story of ‘The GDP looks OK but there is nothing on the local demand side’.”

Oster predicts, as a result, interest rates will be lower or flat for longer.

“The local economy is not anywhere near as strong as GDP numbers would imply,” he says. 

But Oster cautions not to read too much into the increased trade deficit at this stage. 

“The trade data is actually a value data, so we know there has been a big fall in the iron ore price, but it may not mean the volumes are as negative as might be implied,” he says.

“It’s still likely to get a positive contribution to GDP out of net exports.”

Export Council of Australia general manager Peter Mace says the increased trade deficit does not bode well for SME exporters. 

“One of the positives normally when this happens is the dollar tends to drop as well but at the moment it is going in the opposite direction and getting stronger,” he says.  

“There isn’t much benefit for SMEs out of those figures.”