Current Account Deficit in Australia and Relevant Economy Policy

Topics: Macroeconomics, Economics, International economics Pages: 11 (2934 words) Published: August 24, 2011
The overall economy condition of Australia
Australia’s economy has experienced positive reforms over the last two decades. These reforms have boosted the country’s economy and raised the country’s standard of living. In 2009, Australia was the 13th largest economy by nominal GDP of US$930.8 billion (Wikipedia). Positively engaged in world trade, Australia is ranked the 21st largest importer and 23rd largest exporter in the world (Economy Watch 2009). Export commodities are: coal, iron ore, gold, meat, wool, alumina, wheat, machinery and transport equipment. The top5 export destinations are China, Japan, North Korea, India and United States. Import commodities are: machinery and transport equipment, computers and office machines, telecommunication equipment and parts; crude oil and petroleum products. The top5 import sources are China, United States, Japan, Thailand and Singapore (Australia fact sheet 2009). Balance of payments in Australia

Although Australia has achieved significant economy growth, it still has many problems in developing its economy. To be specific, Australia's large current account deficit is currently the greatest concern to some economists. For the past three decades, Australia has had a BOP deficit with its CAD having grown from $195 million in December, 1979 to $18483 million in December, 2009 (ABSxls). With the enormous BOP deficit, Australia has to take measures to control the sources of BOP deficit, so that it will not fall into a debt crisis like Greece’s. The latest BOP statistics are listed below:

Current account ;-18483
Goods and Services ;-7467
Goods and Services credits ;60234
Goods and Services debits ;-67701
Goods ;-6898
Goods credits ;46638
Goods debits ;53536
Services ;-569
Services credits ;13596
Services debits ;-14165
Primary income ;-10897
Primary income credits ;9672
Primary income debits ;-20570
Secondary income ;-119
Secondary income credits ;1608
Secondary income debits ;-1727

(Sources: ABS 2009)
Capital and financial account ;17943
Capital account ;-35
Acquisitions/disposals of non-produced non-financial assets ;0 Acquisitions/disposals of non-produced non-financial assets credits ;0 Acquisitions/disposals of non-produced non-financial assets debits ;0 Capital transfers ;-35

Capital transfers credits ;0
Capital transfers debits ;-35
Financial account ;17978
Direct investment ;7731
Direct investment, Assets ;-6087
Direct investment, Liabilities ;13817
Portfolio investment ;-298
Portfolio investment, Assets ;-34144
Portfolio investment, Liabilities ;33846
Financial derivatives ;-2165
Financial derivatives, Assets ;12133
Financial derivatives, Liabilities ;-14297
Other investment ;11529
Other investment, Assets ;-4008
Other investment, Liabilities ;15536
Reserve assets ;1181
Net errors and omissions ;541
(Sources: ABS 2009)
From the first chart, we can see that the major components of current account deficit were primary income deficit and goods deficit. At the end of 2009, Australia had a current account deficit of $18483 million in current price terms. Specifically, primary income had a total negative amount of $10897 million, which forms the largest part of current account deficit. Goods had a negative amount of $6848 million, so Australia’s net import was $6848 million. Besides, services account had a negative amount of $569 million, which illustrates that services import exceeded the services export by $569 million. There were large amount of transactions in goods and services, with a total debit of $67701 million and a total credit of $60234 million. From the second chart, we can see that little capital transactions happened during 2009. The total amount of capital account was -$35 million, which belonged to capital transfer. Financial account had a surplus of $17978 million, with the imbalance in other investment account contributing $11529 million to the surplus. Although there...

Bibliography: ABS 2009, Balance of Payments and International Investment Position,
ABS 2002, Balance of Payments and International Investment Position ,
Carbaugh, RJ 2002, International Economics, 8th edn, Thomson-South Western College Publishing,
Cincinnati, Ohio
CIA 2010 the world fact book ---Australia,
Economy Watch 2009, Australia Economy,
Economy Watch 2009, Australia Economic Policy,
McTaggart, D., Findlay, C. & Parkin, M. 2003, Economics, 4th edn, Addison Wesley, Sydney, pp. 808-819
Nguyen, D n.d., Macroeconomic Policy in Australia,
Market Information and Research Section 2009, Australia fact sheet,
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