Australia’s current account balance experienced an unexpected swing into deficit during the first quarter of the calendar year, with imports surging and commodity export prices declining. This sudden change will negatively impact the nation’s gross domestic product (GDP. According to data from the Australian Bureau of Statistics (ABS), Australia’s current account was in a $4.9 billion deficit during the first quarter, much lower than the anticipated $5.1 billion surplus. The previous quarter’s surplus has also been revised downwards significantly to $2.7 billion.
A current account deficit indicates that a country imports more goods, services, and income from abroad than it exports overseas. Typically, the largest component of an account deficit is a trade deficit, where a country spends more money on imports than it earns through exports. Australia had experienced a current account deficit for 44 years, starting from September 1975 to September 2019. However, in recent times, the balance swung into surplus.
In the first quarter of the year, the ABS reported that net exports would reduce GDP by 0.9 percentage points, which is higher than analysts’ predictions of a 0.6 percentage point reduction. The balance on goods and services fell $6.1 billion to $17.8 billion, while the net primary income deficit increased by $1.5 billion to $22.3 billion.
A steeper decline in import prices (down 2.0 percent) compared to the fall in export prices (down 1.8 percent) meant that Australia’s terms of trade rose by 0.2 percent during the quarter, although this figure was down 7.3 percent year-over-year. Grace Kim, ABS Head of International Statistics, explained that “the prices of goods exports fell, led by metal ore prices, after a rise in the December quarter. The price of exported goods was 10.3 percent lower compared to this time last year.
Goods exports also decreased in volume terms, falling by 1.5 percent due to reduced domestic production of coal and iron ore. Additionally, some rural goods contributed to the decline, driven by a decrease in cotton harvests after farmers experienced low yield crops.
One area of growth within the economic data for the first quarter was an increase in government spending, which helped boost growth and offset a significant fall in net exports. Operational expenditure rose 1 percent in the first quarter compared to the previous one, reaching an inflation-adjusted $135.7 billion ($90.61 billion. However, total government and public enterprise investment in fixed assets fell by 0.9 percent to $33.1 billion. Overall, the ABS estimated that public demand would add 0.2 percentage points to the March quarter GDP figure.