Craig James, Chief Economist Twitter: @CommSec IMPORTANT INFORMATION AND DISCLAIMER FOR RETAIL CLIENTS The Economic Insights Series provides general market-related commentary on Australian macroeconomic themes that have been selected for coverage by the Commonwealth Securities Limited (CommSec) Chief Economist. Economic Insights are not intended to be investment research reports. This report has been prepared without taking into account your objectives, financial situation or needs. It is not to be construed as a solicitation or an offer to buy or sell any securities or financial instruments, or as a recommendation and/or investment advice. Before acting on the information in this report, you should consider the appropriateness and suitability of the information, having regard to your own objectives, financial situation and needs and, if necessary, seek appropriate professional of financial advice. CommSec believes that the information in this report is correct and any opinions, conclusions or recommendations are reasonably held or made based on information available at the time of its compilation, but no representation or warranty is made as to the accuracy, reliability or completeness of any statements made in this report. Any opinions, conclusions or recommendations set forth in this report are subject to change without notice and may differ or be contrary to the opinions, conclusions or recommendations expressed by any other member of the Commonwealth Bank of Australia group of companies. CommSec is under no obligation to, and does not, update or keep current the information contained in this report. Neither Commonwealth Bank of Australia nor any of its affiliates or subsidiaries accepts liability for loss or damage arising out of the use of all or any part of this report. All material presented in this report, unless specifically indicated otherwise, is under copyright of CommSec. This report is approved and distributed in Australia by Commonwealth Securities Limited ABN 60 067 254 399, a wholly owned but not guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124. This report is not directed to, nor intended for distribution to or use by, any person or entity who is a citizen or resident of, or located in, any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or that would subject any entity within the Commonwealth Bank group of companies to any registration or licensing requirement within such jurisdiction.

Economics | November 5, 2020

Trade surplus lifts; ‘Green shoots’ on car sales International trade; New vehicle sales Foreign trade: The trade surplus rose by $3 billion to $5.63 billion in September. Australia has posted 33

successive monthly trade surpluses.

Rolling annual trade: The rolling annual surplus rose from $69.793 billion in the year to August to $70.583 billion in the year to September.

New vehicle sales: New vehicle sales totalled 81,220 units in October, down just 1.5 per cent on October 2019 – the smallest annual decrease in 30 months.

The trade data is instructive on income flows in the economy and consumer and business activity and has implications for the currency. New vehicle sales data provides insights into business and consumer spending.

What does it all mean? Australia continues to pay its way, chalking up 33 consecutive monthly trade surpluses. The surplus stood at just

over $70 billion for the last year. But clearly there are downside risks given the deterioration in the Australia-China trade relationship.

The Reserve Bank Governor included ‘transactions in the foreign exchange market’ as a possible option should there be the need for further monetary policy easing. But the RBA would clearly have difficulty in driving the Aussie dollar lower while the country records solid trade surplus and outperforms other countries on economic grounds.

There are reasons for optimism on new vehicle sales. While sales were down on a year ago in October, the fall was only 1.5 per cent, the smallest decline in 2½ years. And excluding Victoria, sales rose by 9.8 per cent in the year – the fastest growth in almost 8 years. Near-zero interest rates, the blockage on international travel and an improving job market may encourage more Aussies to purchase a new vehicle in coming months.

CBA group economists expect net exports (exports less imports) to cut 1.8 percentage points from September quarter economic growth.

What do the figures show? International trade – September

The trade surplus increased rose by $3 billion to $5.63 billion in September. The surplus had hit a record high $10.53 billion in March. Australia has posted 33 successive monthly trade surpluses.

The rolling annual surplus rose from $69.793 billion in the year to August to $70.583 billion in the year to September.

Exports of goods and services rose by 3.9 per cent (exports of goods rose by 4.2 per cent).

Imports of goods and services fell by 5.9 per cent (goods imports fell by 6.5 per cent).

Rural exports fell by 1.6 per cent after rising 9.8 per

November 5, 2020 2

Economic Insights. Trade surplus lifts; ‘Green shoots’ on car sales

cent in August. Exports of non-rural goods rose by 0.9 per cent after rising by 3.3 per cent in August. Gold exports rose by 71.7 per cent after falling 61.8 per cent in August.

Within imports, consumer imports fell by 3.9 per cent; capital goods imports decreased 3.3 per cent and intermediate goods imports fell by 6.6 per cent.

A net services surplus of $1.524 billion was posted in September after a $1.348 billion surplus in August.

Australia's annual exports to China fell from $145.83 billion in August to $145.16 billion in September. Exports to China are up only 0.1 per cent on a year ago.

Australia's annual imports from China fell from a record $82.44 billion in August to $82.22 billion in September. Annual imports were up by 4.6 per cent on a year ago.

Australia's rolling annual trade surplus with China fell from $63.39 billion in August to a 14-month low of $62.94 billion in September.

Australia’s rolling annual trade deficit with the US fell to near 4-year lows of $16.82 billion.

New vehicle sales - October

New vehicle sales totalled 81,220 units in October, down just 1.5 per cent on October 2019.

The Federal Chamber of Automotive Industries reported:

“The October 2020 market of 81,220 new vehicle sales is a decrease of 1,236 vehicle sales or -1.5 per cent on October 2019 (82,456) vehicle sales” [the smallest annual decline in 30 months].

“October 2020 had 26.1 selling days compared to October 2019 with 26.4 and this resulted in a decrease of 11.5 vehicle sales per day.

The Passenger Vehicle Market is down by 5,763 vehicle sales (-24.5 per cent) over the same month last year; the Sports Utility Market is up by 2,576 vehicle sales (6.7 per cent); the Light Commercial Market is up by 1,988 vehicle sales (11.6 per cent); and the Heavy Commercial Vehicle Market is down by 37 vehicle sales (-1.2 per cent) versus October 2019.

Toyota was market leader in October, followed by Mazda and Hyundai. Toyota led Mazda with a margin of 12,048 vehicle sales and 14.8 market share points.”

Sales across states and territories over year to October: NSW (up 6.2 per cent); Victoria (down 28.3 per cent); Queensland (up 11.7 per cent); South Australia (up 14.5 per cent); Western Australia (up 17 per cent); Tasmania (down 16.1 per cent); Northern Territory (up 27.7 per cent); ACT (up 28.1 per cent).

The rolling annual total of new vehicle sales in October was 895,058, down 16.8 per cent on the year and the lowest annual total in 17 years. Rolling annual passenger car sales fell by 30.6 per cent on the year with SUVs down 9.7 per cent and “other vehicles” down 12.2 per cent.

In the year to October, SUVs accounted for a record 65.7 per cent of combined SUV and passenger vehicle

November 5, 2020 3

Economic Insights. Trade surplus lifts; ‘Green shoots’ on car sales

sales.

What is the importance of the economic data?

The monthly International Trade in Goods and Services release from the Bureau of Statistics provides estimates on exports and imports of physical goods (such as coal, beef and computers) and services (such as travel receipts). The balance of goods and services (BOGS) is a narrower description of Australia’s external position than the current account estimates. The import data is a useful gauge of consumer and business spending while exports reflect global demand as well as domestic influences such as drought.

The Federal Chamber of Automotive Industries releases estimates of new vehicle sales on the third business day of the month. The figures highlight the strength of consumer spending as well as conditions facing auto & components companies.

What are the implications for investors? The poor Australia-China trade relationship poses risks for Australian exporters, especially in regional Australia.

And there are downside risks more generally for the trade surplus. Having said that, Australia continues to trim the trade deficit maintained with the US. A potential Biden US presidency may ease global trade tensions with a bilateral or multilateral deal with Asia-Pacific nations – including Australia – on the cards.

Demand for new and existing vehicles continues to rise as Aussies exert their preference for private car use over public transport in the COVID-19 environment. However the rising demand is showing up in higher prices and this may serve as a natural brake on car sales.

Craig James, Chief Economist, CommSec Twitter: @CommSec