Australia: Current account deficit narrows but remains sizeable – Westpac

Andrew Hanlan, Senior Economist at Westpac, notes that the Australia's current account deficit came in at $20.8bn in the March quarter.

Key Quotes

“That was a $1.8bn improvement on the December deficit of $22.6bn, centred on a $2.8bn narrowing of the trade deficit.

However, looking through the quarterly volatility, the current account position has deteriorated markedly over the past year.

For the past year, the current account deficit averaged $21.2bn per quarter, a $8.1bn blow-out from the preceding year. The trade position deteriorated by $5.6bn, while the income deficit increased by $2.5bn.

The current account deficit represented 5.0% of GDP in Q1 and 5.2% of GDP for the year. By contrast, for the year to March 2015 the deficit was a more moderate 3.3% of GDP.

The low point in the current account deficit was September 2011, at -2.5% of GDP. Since that time the terms of trade has fallen back by 36%. In the current quarter, the terms of trade fell by 1.9%, to be 11.5% lower than a year ago.

The trade deficit was $8.1bn in the March quarter 2016, a $2.8bn improvement on December despite the weaker terms of trade.

Export earnings contracted by 0.7% in the opening quarter of 2016, to be 5.4% lower over the year. The import bill fell by 3.8% in the quarter and declined by 1.8% over the year.

Net exports will add a sizeable 1.1ppts to Q1 GDP, after a flat Q4. Export volumes resumed their upward trend, increasing by 4.4%, while imports declined by 0.8%.

The net income deficit grew to $12.7bn, a $1.0bn deterioration on December, centred on weaker income credits.”