I haven’t written here for a while but I thought I’d start-off the New Year with a look at where the Australia economy stands. First up, is a look at the latest data on the Australian and US trade deficits…
Still in deficit
Australia’s trade deficit grew in November, which is the eighth month in a row that Australia has been importing more than it’s exporting. The ABS says the deficit on the balance of goods and services has grown 5%, to $925 million, from $877 million in October.
The big news is that the deficit came in lower than analysts had expected, which is largely due to continuing growth in export volumes of commodities, like iron ore, which has balanced lower cash receipts on the back of tumbling prices.
The lower Aussie dollar had had an impact through making local exports more competitive. The deficit news saw a slight bump in the currency’s value, but it is still sitting at its lowest point in more than five years.
The flip side is a rise in the price of imports, but that hasn’t stopped imports also increasing.
In the end it is expectations that matter the most, the fact that the slip was smaller than anticipated has shifted forecasts towards hopes of higher growth.
Current account deficit
But the trade deficit isn’t the whole story; it makes up only a portion of the Current Account deficit, albeit a large one. In September the deficit on the current account was shown to have shrunk, but it still stood at $12.5 billion.
The current account measures short-term movements of funds in and out of the country. Think interest payments from offshore business, exports minus imports etc.
Net foreign debt for the quarter grew to $882.9bn.
As has been the case for a long time, this deficit has been paid for by net capital inflows into Australia. We don’t save enough here in Oz to pay for the trade deficit so we rely on foreign capital.
And as the Reserve Bank is so fond of saying, strong foreign demand to invest capital here is the key factor that makes the trade deficit acceptable.
US trade deficit also shrinking
The US Commerce Department released their own figures on Wednesday with the US deficit narrowing 7.7 per cent to $39 billion, the smallest since the end of 2013. And, like in Australia, it’s October figure was also revised down.
Oil had its part to play in the shift, with a reduction in foreign dependence on the commodity taking pressure off imports and pointing towards a strong fourth quarter GDP figure. The US economy is in a rapidly improving state, third quarter growth came in at a blistering 5 per cent with 0.8 per cent coming from trade. Forecasts are pointing towards a 3.5 per cent annualized growth rate for the fourth quarter.