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 Australias trade performance. This outcome largely reflects cyclical factors. Slower world economic growth, particularly in the East Asian region, has resulted in slower growth in Australias 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 Governments 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.