A dip in exports and a fall in public spending could weigh on economic growth in the September quarter but economists are still maintaining forecasts for solid GDP growth.
Australia's current account deficit narrowed slightly to $9.1 billion in the September quarter, down from a deficit of $9.6 billion the previous three months, data from the Australian Bureau of Statistics showed on Tuesday.
The smaller deficit was a result of stronger service exports (up $366 million), and an uptick in income credits that include direct investment assets , income on equity and investment fund shares (up $612 million).
Much of Tuesday's data release was negative for third quarter GDP, JP Morgan economist Tom Kennedy said.
"Net exports are now expected to be neutral for GDP growth in the September quarter, a modest disappointment relative to our prior forecast of a one-tenth contribution," he said.
"More importantly, Australia's government investment numbers were considerably weaker than we had expected."
Australia's deficit on goods and services rose by $145 million, or just 1.6 per cent, in the third quarter, seasonally adjusted figures from the ABS showed.
In real terms, export and import volumes both rose by 1.9 per cent, boosted by higher volumes for minerals and LNG.
However, this came amid a fall in commodity prices as coal and iron ore prices wound back to normal levels after a strong run earlier in the year.
This was reflected in the terms of trade on goods and services - the prices of exports relative to the prices of imports - slipping 0.4 per cent in the September quarter.
As a result, international trade will have no impact on third quarter economic growth, the Australian Bureau of Statistics said, a weaker contribution than economists had expected.
Separate government investment figures released on Tuesday showed public spending also pared back 7.5 per cent in the September quarter, following a jump in the previous quarter.
Gross domestic product growth for the quarter is now likely to come in around 0.7 per cent, economists said, slightly below the 0.8 per cent expansion in the previous quarter.
Annual growth is expected to trend near 3.0 per cent, matching the RBA's targeted level.
The GDP data will be released on Wednesday.
The Australian dollar jumped nearly half a cent from 76.08 to 76.5 US cents on the release of data on Tuesday, which coincided with figures showing local retail spending rose by an above-expectation 0.5 per cent in October.
The Reserve Bank of Australia on Tuesday left the official interest rate at 1.5 per cent for a 16th straight month, and RBC Capital Markets chief economist Su-Lin Ong said the GDP data will do little to shift the central bank's view.
"We suspect that they will need more than one decent month of retail sales to shift some of their caution around household expenditure," she said.
"We remain with our central case view for the RBA to stay on hold throughout 2018, marking an unusually long pause."
