Balance of Payments and government expenditure figures released this morning showed the drag on Q4 GDP from net exports won’t be quite as bad as first feared.

According to the ABS, net exports are expected to subtract 0.5 percentage points from quarterly GDP — slightly less than the median economist forecast for a 0.6% decline.

“Goods exports fell by 1.7% in Q4 to be 0.9% lower over the year. Service exports expanded by a robust 6.6% during 2017 despite a 1.9% dip in Q4,” said Westpac economist Andrew Hanlan.

“Exports are expected to perform better in 2018 as additional capacity in the gas sector comes on stream.”

However, data for the December quarter also showed Australia’s current account deficit increased to $14.024 billion in seasonally adjusted terms — higher than than the $12.2 billion expected and an increase of $3.011 billion since the September quarter.

Net goods exports contributed a further $1.922 billion to the deficit in the December quarter, driven largely by a 7.7% fall in exports of rural goods offset against an increase in total imports.

This table show from the ABS shows the contribution of net goods and services to the Q4 current account balance, in seasonally adjusted terms:

The ABS said government investment also increased in the December quarter, which also bodes well ahead of tomorrow’s GDP report.

“The figures released on net exports and government spending in the fourth quarter were stronger than we had expected,” said Capital Economics economist Kate Hickie.

“After rising by just 0.2% q/q in the third quarter, government spending increased by 1.7% q/q in the fourth quarter. Public investment also rose by 2.9% q/q.”

“Together with our view that real consumption growth rebounded in the fourth quarter, we now estimate that tomorrow’s GDP release will show that GDP growth remained at 0.6% q/q in the fourth quarter (compared to our previous estimate of +0.5% q/q).”

Factoring in some downside surprises from yesterday’s company profits and inventories data, Westpac’s forecast for quarterly GDP has been revised down to 0.4%.

The Australian dollar was little-changed in the wake of this morning’s data dump — which also saw the release of January retail sales data — a short time ago trading at 0.7783 US cents.

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