SYDNEY: Australia’s trade performance was more of a drag on the economy than thought last quarter, even though surging prices for key exports lifted the country’s terms of trade to record highs and delivered a huge windfall in cash earnings.

Tuesday’s data showed the volume of net exports, or exports minus imports, subtracted 0.5 percentage points from gross domestic product (GDP). That could offset a big contribution to growth from rising inventories in the quarter.

“It takes forecasts back to where they were at around growth of 1 percent for the quarter,” said John Peters, a senior economist at Commonwealth Bank. Figures for GDP for the second quarter are due this week.

Much of the miss on export volumes was in coal shipments, which recovered only slowly from massive flooding damage caused in the first quarter.

Coal is the country’s second-biggest export earner after iron ore and it was a big drop in coal exports that caused GDP to drop by 1.2 percent in the first quarter.

Yet while volumes were soft, prices for coal exports actually climbed 35 percent in the second quarter as demand from China and India grew unabated.

When calculating real GDP statisticians strip out changes that are due to prices alone, and in Australia’s case this increasingly understates the boon from trade.

Thus in “real” terms the country was estimated to have a deficit on goods and services of A$10.2 billion in the second quarter. Yet in current prices it ran a surplus of A$5.6 billion, double that of the first quarter.

“Export prices are skyrocketing but it doesn’t show in the GDP bottom line because of the way it's calculated,” said Peters at CBA. “That will change once volumes start to pick up, which they will given all the investment in the resource sector.”

The lift in export prices did show in Australia’s current account deficit, which shrank by a third to A$7.4 billion in the second quarter.

The country’s terms of trade, or the ratio of export prices to imports, jumped a further 5.4 percent to a record high, boosting profits, wages and tax receipts across the economy.

In any case, the domestic news was drowned out by fresh turmoil in global markets, where fears of a return to recession in the US and Europe dominated sentiment.

The acute uncertainty abroad is almost certain to keep the Reserve Bank of Australia (RBA) on the policy sidelines after its monthly board meeting on Tuesday.

The central bank is expected to hold interest rates steady at 4.75 percent for a 10th month when it releases a brief statement at 0430 GMT.

“While domestic data has been solid, offshore headwinds are still strong enough to stay the RBA’s hand for now, and for several months at that,” Annette Beacher, head of Asia Pacific Research at TD Securities.

“But do not expect an easing bias while the unemployment rate remains low, investment is booming and unit labor costs continue to accelerate.”

RBA Governor Glenn Stevens made his thinking clear to lawmakers a couple of weeks ago. “There (are) periods of tremendous turbulence where really it is a very good thing I think for policy to just sit still if we can,” he said.

The central bank remains optimistic the Australian economy can weather the turbulence thanks to record high terms of trade and a truly massive boom in mining investment.

But it has also acknowledged that the gloom abroad could lead Australian consumers to curb their spending and so lessen inflation pressures over time.

As a result most economists in a Reuters poll think rates are on hold out to the first quarter of next year, before the RBA starts tightening again.

Investors have been more spooked by the grim global outlook and have priced in a risk of rate cuts from the RBA, though the bank has shown no hint of easing as yet. Interbank futures imply around 85 basis points of easing by year-end.