TRADE GAP NARROWS AS IMPORTS SHRINK

Trade gap narrows as imports shrink

Australia's trade deficit narrowed more than expected in November, as imports fell while exports remained flat.

The trade deficit reached a seasonally adjusted $118 million in November, falling from a revised $358 million gap in October. Economists were forecasting a deficit of $300 million.

During the month, exports were flat, while imports were down 1 per cent. Exports rose by a seasonally adjusted $94 million to $27.4 billion. Imports fell by $146 million to $27.5 billion.

The Australian dollar dropped as low as 89.27 US cents in the wake of the data, down from 89.56 US cents just before 11.30am.

"It's encouraging to see that exports overall are still holding up," Commonwealth Bank economist Diana Mousina said. "Within the data, iron ore and coal prices are still holding up. That was offset this month by a fall in the volumes of exports.

"But overall, when we look at the port data, we can see that iron ore exports, in particular from Port Hedland, are still at record levels, and we expect them to keep increasing in 2014 as more projects are finished and the production starts to get exported."

Analysts have said they expect the trade deficit to narrow and turn into a surplus this year as the mining boom transitions away from its investment phrase towards its production and export stage.

The slide in imports in November was driven by a fall the import of consumption goods by 2 per cent, or $127 million, to $6.7 billion.

Ms Mousina said the decrease could be due to a fall in demand by Australian consumers, or from the switch by some consumers towards domestically produced goods as the recent weakness in the Australian dollar increases the cost of imports.

Commonwealth Bank economists expect the trade balance to become positive by the fourth quarter of this year as exports increase and a possible further weakening of the local currency reduces imports.