Trade slumps in Australia

Howard's government faces an election which could take place as early as next month

The effects of the slowing global economy have hit Australia hard, according to new figures which show the country importing more and exporting less in August.

The trade data looks set to boost the chances that the Reserve Bank will cut interest rates when it meets today, to help kickstart an economy which faces sliding tourist income and a manufacturing downturn.

The Bank failed to participate in the concerted round of cuts seen in the immediate aftermath of the attacks on the US on 11 September, not least because it had already cut rates on 5 September at its last meeting.

"We have not seen, in the past week, anything relating to Australian monetary policy's field of operation which was so urgent that it warranted the suspension of the normal timetable," said the bank's governor at the time.

But economists believe the new numbers mean a cut from 4.75%, probably by a quarter of a point, is near-inevitable.

"In the period since then, the outlook for the global economy, while still very unclear, will certainly be a significant restraint on Australian economic growth," said SG Securities' Glenn Maguire.

"With early indications of a retrenchment in consumer sentiment under way, and business sentiment particularly fragile, we look for a more aggressive easing."

Seven-month run over

The figures, for August, showed Australia's trade surplus - traditionally one of the country's strengths - collapsing to A$33m ($16.3m; £11m) from a record A$1.115bn in the month before, a seventh straight month of surplus.

Imports were up 7% to A$12.83bn as shoppers bought more foreign goods and services, while exports were down 2% to A$12.86bn.

The weakness of the Australian dollar has been helping the trade balance, but that now looks unlikely to protect Australia from the economic storms ahead.

The country is in any case facing an election, originally set for early next year so as not to clash with a visit from the Queen and the Commonwealth Heads of Government Meeting (CHOGM) in Brisbane in October.

Now, though, the election could take place as early as 10 November, as the government is riding high in the polls following its tough stance on Afghan refugees and before the economic news gets much worse.