Aussie Current Account shrinks

I like this news:
Official figures show Australia posted a current account deficit of $6.5 billion in the December quarter.

The figures show the deficit has narrowed by nearly $3 billion, or about a third, from the quarter before.
Australia's Current Account has been in deficit for decades. In the past few years, this deficit has reached around 7% of GDP.

But this situation has changed in the last 2 quarters of 2008. 2008 Q3 dropped to -3.2% of GDP while the recent figures for 2008 Q4 indicate that it probably dropped to around -2.0% of GDP.

A lot of this has to do with the commodities boom - Australia is rich in raw materials - while the 4th quarter is probably due to reduced consumption (3rd quarter GDP was +0.1%).

Now that the commodities boom is over and Rudd has put in a stimulus package, I would expect an increase in the Current Account deficit for the first two quarters of 2009.

Our currency remains low, though, which means our exports should be doing a bit better.


As many readers know, I am a fan of balance. To me, the best situation to be in is to have a balanced current account over the course of the business cycle. Australia, like the US, has been on a borrowing and buying binge. Anything which moves our economy to a balanced current account makes it more sustainable. Any nation with big current account deficits or surpluses are asking for trouble, as Japan and the US can testify.

No comments: