UPDATE 1-Solid Australia retail sales, export boom back steady rates outlook

Wed Feb 5, 2014 8:38pm EST

* Retail sales rise 0.5 pct in Dec, solid 0.9 pct for Q4
    * Trade surplus biggest in 2 years as exports to China surge
    * Reinforces outlook for no more rate cuts, boosts A$

    By Wayne Cole
    SYDNEY, Feb 6 (Reuters) - Australian retail sales topped
forecasts for a fifth straight month in December adding to
evidence that consumer spending is reviving in time to help
cushion the economy from a cooling mining boom.
    Thursday's data from the Australian Bureau of Statistics
also showed the country boasted its biggest trade surplus in two
years in December as exports rose beyond all expectations.
    Despite all the talk of a Chinese slowdown, exports to the
Asian colossus surged 29 percent to a record A$94 billion ($84
billion) for all of 2013.
    The upbeat news supported the Reserve Bank of Australia's
(RBA) decision earlier this week to shut the door on further
rate cuts and lifted the local dollar a third of a U.S. cent to
a one-month peak at $0.8980.
    "For the RBA, it is consistent with their view that policy
is gaining further traction," said Su-Lin Ong, a senior
economist at RBC Capital Markets.
    "It sits comfortably with their neutral bias as they wait
and see how the combination of a lower exchange rate as well as
lower interest rates work its way through the economy."
    The RBA dropped its easing bias in part because of signs
record lows rates of 2.5 percent were feeding through to
consumer wealth, confidence and spending.
    After a marked pick up in the second half of last year
retail sales rose 0.5 percent in December, from the previous
month to pip forecasts of a 0.4 percent gain. For the whole
fourth quarter sales rose an inflation-adjusted 0.9 percent.
    That was a welcome turnaround as the A$270 billion retail
sector accounts for 17 percent of Australia's A$1.5 trillion in
annual gross domestic product and is the second-biggest employer
after the health industry, with 10 percent of all jobs.
    
    
    EXPORTS TO CHINA RUN HOT
    Another major positive for the economy has been a rapid rise
in resource exports as mining projects come on stream and demand
from China remains resilient.
    Trade figures for December showed total exports climbed 3.7
percent in the month to an all-time high as volumes of farm
goods, iron ore and coal all increased. That delivered a trade
surplus of A$468 million, a marked improvement from the A$300
million deficit analysts had expected.
    The country also enjoyed a small surplus for the whole of
the fourth quarter -- a swing of almost A$3 billion from the
previous quarter -- which likely made a major contribution to
economic growth.
    Exports of goods to China jumped 11 percent in December to a
fresh record peak, thanks in large part to a sustained
acceleration in iron ore sales. 
    That trend continued into the new year with shipments of
iron ore from Port Hedland, Australia's busiest port, up 27
percent in January from a year earlier despite weather troubles.
    Exports of liquefied natural gas have also been rising
strongly and are set to explode over the next few years as major
projects come on line.
    "A sharp rise in resource export volumes and a marked
reduction in resource-related capital goods imports as the
mining construction boom winds down will drive the move into
trade surplus," said Michael Blythe, chief economist at
Commonwealth Bank of Australia.
    "We may be generating small current account surpluses within
five years."
    If correct that would be a radical sea change for Australia
which has run a current account deficit for 128 of the past 150
years. The lessened reliance on foreign funding would in turn
tend to underpin the Australian dollar.
    "The combination of a AAA rating and a current account
surplus would likely see the AUD again trade well above parity
to the US dollar," added Blythe.

 (Reporting by Wayne Cole; Editing by Shri Navaratnam)
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