Australia posts trade deficit as disasters hit exports

A loader prepares to shovel iron ore dug from an Australian mine Shipments of iron ore, one of Australia's key exports, were affected by the flooding and cyclone

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Australia has posted a shock trade deficit for the first time in 11 months as twin natural disasters dented the country's exports.

According to the latest data for February, the trade deficit stood at A$205m ($212m; £131m).

Analysts were expecting a trade surplus of close to A$950m.

Meanwhile the Reserve Bank of Australia (RBA) has kept interest rates unchanged at 4.75%.

"The natural disasters over the summer have reduced output and the resumption of coal production in flooded mines is taking longer than initially expected," Glenn Stevens, governor of the central bank, said in a statement.

The Australian states of Queensland and Victoria were hit by floods and a cyclone in January and February.

The states are home to some of Australia's most resource rich areas. As a result there has been a sharp fall in shipments of metals and minerals, with exports in the sector down by 8%.

However, the RBA said that it expects production levels to recover over the next few months.

Start Quote

The outlook for trade remains very strong, with high commodity prices underpinning miners' plans for huge investment spending”

End Quote Brian Redican Macquarie

Overall, Australia's exports slid 2% in February to A$22.8bn.

Meanwhile, imports rose by 5% to A$23bn. The surge in imports was mainly due to a 26% jump in the cost of fuels and lubricants.

Temporary effect

Australia's economy has witnessed robust growth in the past few years. The economic boom has resulted in high rates of employment and more disposable income for consumers, resulting in increased demand.

As a result the central bank has been proactive in trying to keep price rises in check, raising the cost of borrowing seven times in the last 18 months.

The recent natural disasters are expected to see inflation go up, but the RBA said it wasn't too concerned about that.

"Production losses due to weather are temporarily raising prices for some agricultural produce, which will boost the March CPI, but these prices should fall back later in the year," Mr Stevens said

"Overall looking through these temporary effects, the Bank expects that inflation over the year ahead will continue to be consistent with the 2 - 3% target," he added.

The central bank also said the strengthening Australia dollar was also helping to offset price rises.

Future secure

Despite the surprising trade deficit, the overall outlook for Australia's exporters remains upbeat.

Increasing demand from emerging economies coupled with rising commodity prices mean that profits at some of Australia's biggest commodity exporters will continue to be robust.

Reserve Bank of Australia's Index of Commodity Prices has surged more than 55% in the first three months of the year.

It now stands 41% higher than in March of last year. Analysts say the effect of this can be already seen.

"The outlook for trade remains very strong, with high commodity prices underpinning miners' plans for huge investment spending," said Brian Redican of Macquarie.

Last week BHP Billiton said it will invest $9.5bn to expand its iron ore and coal operations in Australia. The company has planned an $80bn expansion over the next five years.

Analysts expect Australian companies to invest as much as A$160bn to expand their operations in the country this year.

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