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current account deficit worsens « Previous | |Next »
March 1, 2006

The Australian Bureau of Statistics has said that the current account deficit widened six per cent to $14.5 billion in the December quarter, the third highest on record . The current account deficit has measured over 6 per cent of GDP for five consecutive quarters, the longest run on record. That is in spite of a booming mining exports (in iron ore and coal) and the terms of trade running in Australia's favor.

Nobody in the Howard Government seems worried. It is assumed that the earnings from booming commodity exports, along with improving rural production would drive down the current deficit. Quarry Australia is doing okay. All we have to do is sit and wait for the market to work its magic and the current account deficit will come down.

I reckon that the current account deficit will remain large for most of this year. Isn't it a good issue to raise? So where is the ALP on all of this?

Why aren't they raising concerns about the steady rise in global interest rates increasing the repayments on the debt? Or the failure of the export sector to contribute to economic growth? How come this is not a central plank in their critique of the Governemnt's economic management?

Are they raising the issues but they don't cut through the media filters? Or has Wayne Swan, the Opposition's Treasury spokesperson, given up?

He's raising the issues. But it is just a doorstop. There is a media release Shouldn't Swan be all over the airwaves on this? Stephen Smith is raising the issue of the decline in manufacturing, but it is not cutting through.

So what are they doing about that? Or is the strategy to concentrate the attack on the Howard Government inside Parliament in Question Time? That is what it looks like to me.

Update: 3 March
Some interesting figures.

Australia has a trade deficit with China--- now $4 billion for the first seven months of the financial year. For the same period of last financial year it was $5.3 billion.The deficit with the United States (currently $7.7 billion), Thailand (currently $800 million) and Singapore (currently $3.1 billion) have all blown-out this year.The exception to this is the trade surplus with Japan has increased and now stands just short of $8 billion for the first seven months of the year. That was the total size of the surplus in 2004/05.

All in all Australia's trade deficit with the rest of the world blew out by 135 per cent to $2.69 billion in January with exports slumping seven per cent during the month to $15.2 billion. January's record trade deficit should be worrying the government, Treasury and the Reserve Bank – but all the signs are that this indicator of an uncompetitive economy is being treated by all these powers with indifference.

Isn't Treasury running out of excuses on the trade deficit. Export volumes have been predicted to rise for years now – eg by Treasury in successive budget estimates--- but there has in fact been little overall increase. In some sectors such as manufacturing, exports have fallen. Isn't the situationmasked by the substantial rises in the prices of mineral exports. So what happens when resource prices stop rising and begin to fall?


| Posted by Gary Sauer-Thompson at 6:35 PM | | Comments (6)
Comments

Comments

Exactly the conclusion I came up with yesterday too (as i was thinking about it).

If our CAD is increasing and its mostly private and interest rates outside of oz go up we're in dire trouble.

(merge) Maybe they need to say Australia will have a recession to get the media's attention.

Vee,
isn't it strange the way the media isn't clued into the current account deficit story. It's as if they have gone to sleep--just look at what the business commentators at the Australian write about.

But I guess the current account deficit is about economics not business and so beyond their expertise. The Age commentator
just summarizes the events of the day. There is no independent thinking here at all.

That comes from the economic commentators. And how many economic commentators in the print media do we have who do address the big picture stuff?

The media takes its clues from the politicians. they just accept what Costello says even thought he promised turn around in exports never seems to eventuate. It's like waiting for Goddot.

Perhaps the pollies are holding off for the recession to kick in and workchoices to punish workers so they can capitalise and campaign on that for the 2007 election?

yeah,

while the ALP pollies wait the household debt squeeze continues as household debt levels continue to rise and the decline in real house prices continues in Melbourne and Sydney.

Isn't this squeeze the key factor in the consumer-driven slowdown in the economy over the last year or so?

I have seen estimates ----John Hewson's op. ed, in the AFR (its based on last weeks ABN Amro's Weekly Economic Comment)---that this debt slices off 1-1.5% off the growth of disposable income. The household debt squeeze means that the growth in household disposal income ranges from 2.25% to 5.5% since 1995.

The government's complacency arises because the strong surge in export commodity prices has cushioned the downturn in consumer spending--the resource states of WA and Queensland are better off whilst NSW lags.

The hope is that strong investment in the resource industry leads to a pickup in resource exports and so delivers strong growth and reduced unemployment.

Is that a good thing? The RBA doesn't think so. It means tight labour markets, higher wages, increasing inflation and higher interest rates.

Secondly, 60% of Australia's exports come from outside the resources industry and these areas are struggling.

I figure that a recession will hit but as Howard recently said the government will have no debt come the end of this year but has that gigantic surplus and the foreign CAD, the govt will use the surplus for tax cuts to starve off the recession as long as it can then go to the polls, Labor will get in (pure speculation, no reason there [maybe on the back of IR/Telstra]) and the money will dry up and/or we'll get the money is much worse than we were told story and then the recession will really hit and it will be attributed to Labor.