high immigration destroys trade balance

http://sg.biz.yahoo.com/060303/15/3z462.html

Friday March 3, 12:55 PM
UPDATE: Record Australia Trade Gap As Storms Lash Miners


By James Glynn
Of DOW JONES NEWSWIRES

SYDNEY (Dow Jones)--Australia posted a record monthly trade deficit in January as metal exports slumped in the face of huge tropical storms that shut in mines and closed ports across western and northern parts of the country during the month.

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The merchandise trade deficit widened to a seasonally-adjusted A$2.69 billion in January up from A$1.15 billion in December, the Australian Bureau of Statistics said Friday.

Exports dropped 7% in January from December with metal ore exports down by 25% through the month. Imports rose by 2.0%, the bureau said.

The deficit surpassed the previous record set in November 2004 and was the country's 49th consecutive monthly trade shortfall.

Financial markets, which had been expecting a deficit of just A$1.3 billion in January, knocked the Australian dollar lower by half a U.S. cent as questions mounted about the country's long-missing export recovery.

Late in the Asian session, the Australian dollar was trading at US$0.0.7441, down from an earlier high of US$0.7485. It traded as low as US$0.7429 after the data.

"It seems almost unfathomable that in the midst of a resources boom and with the terms of trade at 32-year highs that Australia has recorded a record trade deficit," said Craig James, chief economist at Commonwealth Securities.

Treasurer Peter Costello forecast an export recovery earlier this week while commenting on a bumper current account deficit in the fourth quarter equal to 6.1% of national output.

Economists remained upbeat despite the deficit "shocker" saying the adverse weather that closed the resource-rich Pilbara region in Western Australia would affect the January data only.

Anthony Thompson, senior economist at Westpac said Chinese New Year celebrations also put a sizable dent in Asian metals demand.

In original terms, Australian exports of metal (ex-gold) were down 18% in January, while China's imports of nonferrous metals were down 21% in the same month, Thompson said.

Rio Tinto Plc (RIO.AU), the main producer of iron ore in Australia, recently promised that missed shipments in January would be made up in coming months.

Australian miners are currently reaping massive profits with iron ore prices surging and set to rise a further 12% in the year to March 31, 2007 according to a forecast this week by the Australian Bureau of Agriculture and Resource Economics.

The major input in steel making, Australia's iron ore export earnings are expected to rise to A$18.02 billion in the fiscal year ending June 30, 2007, up from A$14.28 billion this year, the government's commodity price forecaster said.

Iron ore will be Australia's most valuable mineral export in 2006-07, exceeding revenues from metallurgical coal.

Brian Redican, senior economist at Macquarie Bank said if the reduction in mine exports had not occurred the January trade deficit would have been a far tamer A$2.0 billion.

While net exports will continue to drag economic growth lower in the first quarter, it will correct, he added.

The sudden widening of the deficit is not related to a catastrophic weakening in world demand, it is merely a temporary, weather related glitch, he said.

Commonwealth Bank of Australia chief economist Michael Blythe agreed saying the fall in exports in January was due to monthly volatility rather than any shift in fundamentals.

That picture of a large trade and current account deficit and a large export drag on gross domestic product is continuing into the early part of 2006.

"I suppose the fact is where is it going from here? We do have a mining boom underway and at some point it will lead to extra exports."

"On the export front, while the numbers are disappointing, it won't change people's view of where we are going from here."

-By James Glynn, Dow Jones Newswires; 612 8235 2955;
[email protected]
-Edited by Paul Dekkers