NO.075

BALANCE OF PAYMENTS AND INTERNATIONAL INVESTMENT POSITION – JUNE QUARTER

2003

Today’s balance of payments data show that Australia posted a current

account deficit (CAD) of $12.7 billion or an estimated 6.7 per cent

of GDP in the June quarter 2003. The widening in the CAD over the past

year has been driven by Australia’s strong economic performance relative

to our trading partners and the adverse impact of the drought. Rural

exports have fallen by around 27 per cent through the year

to the June quarter 2003.

In the June quarter a combination of factors adversely affected Australia’s

export performance. In particular, rural exports declined by $437 million.

Services exports also fell in the wake of the SARS epidemic and international

security concerns. Growth in imports was modest in the June quarter of

2003, although imports of capital goods grew strongly. Around $1 billion

in civil aircraft was imported in the June quarter as major airlines

continued their programs of fleet expansion and renewal.

The increase in capital goods imports in the June quarter follows the

strong growth in investment in Australia over the past year. Despite

weak global conditions, today’s capital expenditure survey for June 2003

shows that investment increased by a very strong 18.8 per cent

in 2002-03. The latest estimate of expected capital expenditure also

implies a solid outlook for investment in 2003-04.

Net foreign debt declined to $359 billion in the June quarter of

2003. The general government accounted for a modest 3.1 per cent of net

foreign debt in the March quarter 2003. Australia’s ability to service

its net foreign debt is the strongest in more than 20 years, with

the debt servicing ratio falling to 8.3 per cent of export

income in the June quarter.

Australia’s external financial position remains very sound, underpinned

by the Government’s strong record of fiscal management and the good financial

standing and risk management practices of the private sector. These sound

economic fundamentals are reflected in Australia’s foreign currency credit

ratings being upgraded to `AAA’ by both Standard and Poor’s and Moody’s

in the past year.

As compared with previous cyclical highs in the CAD, Australia’s economic

fundamentals are much stronger. In particular, interest rates are at

30-year lows, inflation is moderate, government debt has been dramatically

reduced and the Commonwealth Budget is in surplus. With weather conditions

improving, rural exports are expected to substantially improve in 2003-04

with grain exports returning to average levels. Signs of recovery in

the global economy will also be positive for export growth.

CANBERRA

28 August 2003

Contact: David Alexander (02) 6277 7340