Trade deficit 'narrower than expected'

The balance of goods and services was a deficit of $807 million, seasonally adjusted, in May, from a downwardly revised $916 million in April, figures from the Australian Bureau of Statistics (ABS) show.

Exports were up three per cent while imports rose two per cent.

The result was narrower than economists' expectations for a deficit of $1.1 billion.

The deficit in May was also at its lowest level since August last year.

The rise in exports to $18.73 billion was largely due to a four per cent rise in non-rural goods exports, while the lingering impact of drought resulted in a small $1 million increase in rural goods exported, from the previous month.

The Australian dollar rose slightly after the data but soon retreated to where it was trading before the 1130 AEST release to be at $US0.8564 by 1154 AEST.

"This seems appropriate, as the improvement is mostly about recovery from depressed exports in March and April and we expect that exports will again be depressed in June," said ICAP senior economist Matthew Johnson.

"Exports were up $545 million on the month, with the bulk of this from an increase in non-rural goods exports.

"Non-rural goods exports were up $502 million on the month, and are now $237 million above the February peak reached prior to Cyclone George's disruption of production in the Pilbara region.

"This improvement is likely to be short lived, however, as the floods in Newcastle will have depressed coal exports in June."

HSBC chief economists for Australia and New Zealand John Edwards said it was clearly too early to declare that the long awaited surge in Australia's exports was underway.

"But the three per cent increase in export values for the month of May reported today is certainly encouraging," he added.

"The value of exports has increased 10 per cent over the last 12 months - not yet booming, but a lot better than the average outcome over the last five years."

Dr Edwards noted that exports of coal rose eight per cent, metal ores and minerals three per cent and gold 10 per cent in May.

"There was also surprising strength in manufacturing," which rose 11 per cent, he said.

Meanwhile, the gain in imports was driven by aircraft imports and a increase in the volume of imported fuel.