Today's Balance of Payments shows a significant widening in the current account deficit in the December quarter to $19.3 billion, representing 7.1 per cent of September quarter nominal GDP.
Both the trade and net income deficits widened in the quarter. The rise in the trade deficit reflects ongoing weakness in export volumes and strength in import volumes.
In the seven years since the December quarter 2000, export volumes have grown at an average annual rate of 1.9 per cent, compared to an average annual rate of 6.9 per cent over the preceding seven years. This slowdown in export volumes growth has occurred despite strong world growth over this period.
Export volumes fell by 0.6 per cent in the December quarter, but remain 2.6 per cent higher through the year. The fall in export volumes was broad based across all export categories, except services. Rural exports continue to be affected by the drought, falling by 1.2 per cent in the quarter and by 13.8 per cent through the year.
Import volumes rose by 3.6 per cent in the quarter to be 10.3 per cent higher through the year. Imports of consumption goods, capital goods and services rose strongly.
The terms of trade rose by 0.7 per cent in the December quarter to be 1.3 per cent higher through the year. The terms of trade were supported by rising export prices, particularly rural export prices, and falling import prices in the quarter. Recently settled prices and market expectations for iron ore and coal prices suggest further support for the terms of trade in the period ahead.
Net foreign debt rose to $610.0 billion, representing 57.2 per cent of year ended September quarter 2007 nominal GDP. Australia's debt servicing ratio – the percentage of export earnings required to meet Australia's debt servicing repayments – rose in the December quarter to 11.7 per cent.
The Rudd Labor Government's economic strategy is squarely focussed on lifting the productive capacity of the economy and boosting our international competitiveness to strengthen our export performance.