Australia’s Trade Balance deficit unexpectedly narrowed in June, revealing a shortfall of –A$441 million, a notably better outcome than economists’ projections of a –A$800 billion result. The result was all the more dramatic given that May’s outcome was revised to show a deficit of –A$737 million, far larger negative reading than the –A$556 million originally reported. Exports grew for the first in four months to add 1.5%, driven primarily by sales of metals, machinery and transport equipment. Yesterday, the Reserve Bank of Australia opted to keep interest rates on hold at 3% for the fourth consecutive month citing, among other things, that “exports are notable for their resilience”. A survey of economists conducted by Bloomberg has forecast that the external deficit will cut just -3.24% off overall economic growth this year, the smallest negative contribution since 2001.

Countering positive cues from trade data, the AiG Performance of Service Index fell to 44.1 in July, revealing activity in the sector is once again contracting having expanded for the first in 15 months in June. Double-digit drops were recorded in inventories (-20.1%), deliveries (-15.2%), sales (-13.9%) and new orders (-11.3%). AiG chief executive Heather Ridout said the path to recovery will be “a long, hard slog”. The result follows yesterday’s unexpected drop in retail sales, adding to early signs that the stabilizing effects of the government’s A$12 billion in cash handouts to households that has propped up consumer sentiment in recent months may be starting to abate.

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