By Victoria Batchelor
/www.bloomberg.com/ Sydney, Dec. 2 (Bloomberg) -- Australia's trade deficit narrowed in October as exports of wool and meat increased. The improvement will be short-lived because a drought and slowing global growth will erode export earnings, economists said.
The shortfall narrowed to A$926 million ($518 million) from a revised A$955 million in September, the Australian Bureau of Statistics said. The median forecast in a Bloomberg News survey of 20 economists was for a trade gap of A$918 million.
Australia's production of cotton, rice and other summer crops will slump to a 20-year low because of drought, the government commodity forecast said today. That's likely reduce exports and widen the trade deficit for the world's third-largest exporter of cotton and wheat.
``While the trade deficit improved in October, the outlook is for the economy to post large shortfalls in coming months,'' said Michael Blythe, chief economist at Commonwealth Bank of Australia. ``There is still the effect of the drought coming through on the export side.''
Exports rose 2 percent in October from the previous month to A$12.67 billion and imports increased 1 percent to A$13.60 billion.
Underpinning export earnings, commodity prices rose 0.3 percent in October, according to the central bank's monthly index.
Drought Cuts Exports
The October trade deficit was the 11th straight monthly shortfall, highlighting the risk to the economy from an El Nino- induced drought gripping more than one-third of Australia, and faltering global economic growth.
Australia may grow 45 percent less cotton in the year ending June 30, 2003, the Australian Bureau of Agriculture & Resource Economics said today. Rice production may slump 70 percent.
The narrowing in the October deficit aside, ``the trade accounts are set to continue to deteriorate for some months,'' said Ric Simes, chief economist at ICAP Australia Ltd.
``The drought and the slowing global economy are conspiring against exports, while much of the expected growth in business investment will be met from rising imports.''
Economists expect the central bank to keep interest rates unchanged until at least June next year because of the threat from slowing global economic growth and the drought.
The Reserve Bank of Australia board meets tomorrow, and 22 of 23 economists surveyed by Bloomberg News expect it to keep its benchmark overnight cash target rate at 4.75 percent. Seventeen of 22 economists expect rates to be unchanged through to the end of June 2003.
The bank has kept interest rates unchanged the past five months following two quarter percentage point increases in May and June.
Exports of services, which include spending by tourists, rose 2 percent. Exports of rural goods gained 7 percent from September. All the figures are seasonally adjusted.