Today's release of the Balance of Payments shows a further significant narrowing in the current account deficit (CAD) in the December quarter to $6.5 billion, representing 2.2 per cent of September quarter nominal GDP. This is the lowest current account deficit (as a proportion of GDP) since the September quarter 2001.
The narrowing of the CAD was driven by a significant rise in the trade surplus from $1.4 billion in the September quarter to $4.1 billion in the December quarter. This is the largest trade surplus recorded since the series began in the September quarter 1959. The increase in the trade surplus largely reflects a significant fall in the volume of imports and a further increase in the price of coal exports.
The terms of trade fell by 2.8 per cent in the December quarter, the first fall since the September quarter 2007. While export prices rose by 9.0 per cent in the quarter, this was more than offset by a rise in import prices of 12.2 per cent, largely reflecting the decline in the Australian dollar during the quarter. The global recession, slowing of China and associated falls in key commodity prices are expected to lead to further falls in the terms of trade this year.
The sharp deterioration in the global economy has also led to a fall in export volumes, which fell by 0.8 per cent in the December quarter, but remain 3.9 per cent higher through the year. Exports for non-rural commodities, elaborately transformed manufactures and services all fell in the quarter, although this was partially offset by a rise in rural exports and other goods.
Import volumes fell by 6.8 per cent in the December quarter, but remain 2.6 per cent higher through the year. Almost all import components fell in the quarter, with the largest falls in services, capital goods and consumption goods.
Net foreign debt rose to $678.3 billion in the December quarter, representing 58.5 per cent of year-ended September quarter 2008 nominal GDP. Australia's debt servicing ratio; fell in the December quarter to 10.1 per cent.
While the deterioration in the global economy will inevitably impact on Australia's export performance, the Rudd Government has acted decisively to help cushion Australia from the worst impacts of this global recession.
3 March 2009