A combination of optimism about the prospect of a US-China trade deal and some better than expected economic data temporarily halted the decline in the Australian dollar towards the end of last year. Even so, the services balance surged into surplus in Q4 with travel services leading the charge. That boost to net exports is likely to fade at the start of 2020 as the combination of concerns about the Australian bushfires and the coronavirus may cause some tourists to avoid travel to Australia or prevent travel altogether. And while a further decline in the Australian dollar will support trade in services this year, we think the pace of that decline, and the associated boost to trade will be less than in 2019. All considered we expect the services balance to return to deficit before long and become a drag on growth in the first quarter of 2019.
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