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Update Australia's current account deficit doubled in the June quarter, a worse-than-expected shortfall that may push the economy into contraction for the period, economists say.

In a separate gauge of economic health, building approvals surged in July. The seasonally adjusted deficit blew out to $13.35 billion in the June quarter from a deficit of $6.35 billion in the March quarter, as lower iron ore prices begin to filter through to Australia's resource sector, according to official data released today.

Economists expected the gap to widen only to $10.7 billion. The sharp drop in net exports helped widen the deficit. Trade in goods and services moved from a $4.3 billion surplus in the first quarter of 2009 to a $1.7 billion deficit in the second quarter.

''This is a timely reminder of the dramatic impact of the global recession on the Australian economy,'' Treasurer Wayne Swan told reporters in Canberra.

The 15.8 per cent fall in total export prices was the largest fall in the 50-year history of the data series, Mr Swan said. Exports slumped to $61.4 billion in the second quarter from $72.2 billion in the first quarter, while imports dropped to $63.1 billion from $68 billion in the first quarter, according to Moody's Economy.com.
 
GDP drag

''We will post a small positive if we're lucky,'' said ICAP economist Adam Carr, referring to the drag the trade numbers will put on the overall economy for the period.

The Australian Bureau of Statistics said the shortfall is expected to subtract 0.2 percentage points from second quarter GDP growth. Mr Carr said the trade shift could alone slash the expected growth pace for second quarter gross domestic product (GDP) to just 0.1 per cent, from a 0.4 per cent growth in the first quarter.

On 4Cast Ltd's numbers, though, second quarter GDP will now record a contraction of 0.1 per cent, based on today's grim current account data. Government spending, though, may help keep the economy out of contraction. Other figures out today show public spending increased 0.8 per cent in real terms for the June quarter, helping to offset the reduction from trade.

Data on inventories out yesterday, though, are likely to trim as much as 0.9 percentage points from GDP growth, according to 4Cast. The Australian dollar was little changed, trading recently at 84.4 US cents on the flood of figures.

The dollar later fell to as low as 84.15 US cents after the RBA left interest rates on hold at 3 per cent.

Coal and iron

''I think the balance of payments clearly shows the impact of the global recession on the Australian economy,'' said RBC Capital Market Su-Lin Ong. ''Obviously the big deterioration in the trade component reflects lower annual coal and iron prices and that's a function of what's been happening globally.''

RBC Capital Market predicts a 0.2 per cent pace of growth for second quarter GDP. Ms Ong said the first quarter GDP could also be revised downward when the data is released tomorrow, taking into account the revised wider trade gap revealed today for the period.

Building approvals jump

The construction sector, however, offers a more positive read on the economy, according to other figures out today.

Building approvals rose by 7.7 per cent in July from the previous month, following a 9.3 per cent increase in June, as the sector continues to rebound, spurred by low interest rates and the first-home buyers grant boost ''The housing recovery is in full swing,'' said Mr Carr. '

'It's exactly what we wanted to see.'' He said the stronger-than-expected building number - analysts forecast only a 3.3 per cent increase - presses home the need for the Reserve Bank to remove some of the stimulus from lower interest rates.

Approvals fell by 3.9 per cent per cent in the year to July from a 14.3 per cent drop in the year June. RBS's Ms Ong said the building approval data shows a counterweight to the drag on the economy caused by faltering trade.

''You've got some strong building approvals which show you the leading indicators of the economy are stronger.'' ''And clearly the monetary and fiscal stimulus is having a pretty decent impact.''

The Australian Bureau of Statistics is scheduled to release national accounts for the June quarter, including the GDP figures, at 11.30 am, Sydney time, tomorrow.

czappone@fairfax.com.au