Despite dimming prospects for world trade, a surge in resource exports helped offset slumping inbound travel to deliver Australia a record trade surplus of $10 billion in March, almost $3 billion higher than the previous high. As China’s economy began reopening in March, exports of iron ore jumped 32% to $11.5 billion and coal and gas shipments also rose sharply. A large fall in imports also contributed to the surplus, as the spread of COVID-19 and global travel restrictions reduced Australian’s overseas travel.
Resources exports to China—which account for more than 20% of Australia's goods and services exports—will be key for continued resilience in commodity prices and overall exports. Iron ore prices, which sat around US$90 per tonne as of mid-May, have been resilient through 2020 amid recovering Chinese demand and global supply disruptions, bucking the declining price trend for many other bulk commodities. High-frequency indicators on China’s coal consumption, oil refining and passenger traffic activity all point to ongoing economic recovery. This, alongside the government’s new fiscal stimulus measures that focus on infrastructure investment and amount to about US$430 billion or 4% of GDP will support demand for Australian iron ore, coal and gas ahead.
Strength in resources will be particularly important during a sustained period of low international travel. Only 7,000 international visitors arrived in Australia in April according to preliminary ABS data, well below the usual 800,000 inbound trips per month (Chart). The proposed ‘travel bubble’ amongst Australia and New Zealand—that could extend to other Pacific Island countries—would support recovery in international demand for Australian tourism once enacted. An additional mitigating factor is the likely shift toward increasing domestic travel as more Australians decide to holiday locally rather than overseas.