NO.029

BALANCE OF PAYMENTS:  MARCH QUARTER 1999

Today the Australian Bureau of Statistics released the “Balance of Payments and

International Investment Position” (ABS Cat. No. 5302). The balance of payments

estimates for the March quarter 1999 indicate a rise in the seasonally adjusted

current account deficit (CAD) to $8.9 billion (or 6.0 per cent of GDP),

below the median market expectation of a $9.1 billion deficit (range

$8.9 billion to $9.4 billion). While this represents a large increase in the

CAD, it remains consistent with the Budget forecast for a year-average CAD of

5 per cent of GDP in 1998-99, as some quarterly volatility around the forecast

average for the year is to be expected.

The widening in the current account deficit is mainly due to ongoing weakness in

Australia’s trade performance. This outcome largely reflects cyclical factors. Slower

world economic growth, particularly in the East Asian region, has resulted in slower

growth in Australia’s exports and lower world commodity prices. In addition, ongoing

strength in domestic demand has continued to underpin solid growth in imports.

Unlike previous episodes of a rising CAD, Australia now has a vastly improved set of

economic fundamentals compared with those earlier episodes. The improvement in public

saving which has resulted from the Government’s fiscal consolidation programme has

been crucial in retaining the confidence of financial markets. In particular, the increase

in the CAD on this occasion reflects private investment decisions rather than an increase

in government borrowing.

The increase in the current account deficit in the March quarter was largely due to a

deterioration in the balance on goods, primarily reflecting a decline in the value of

exports, while the services deficit improved somewhat. The net income deficit increased

slightly in the March quarter, mainly due to an improved profit performance by direct

investment enterprises in Australia.

The rise in the terms of trade of trade reflected a fall in export prices being more

than offset by a large fall in import prices. The latter result is the second consecutive

quarterly fall and is clear evidence of the absence of inflationary pressures coming from

import prices.

As at 31 March 1999, net external liabilities were $354.2 billion, comprising net

debt of $241.6 billion and net equity of $112.7 billion. This was

$10.5 billion higher than the December quarter, largely reflecting a rise in net

foreign equity liabilities. The net debt servicing ratio remained steady at

9.6 per cent, its lowest level since the September quarter 1984.

CANBERRA

1 June 1999