Deficit Hits A Record $59bn As Imports Swamp Exports
The Age
Friday August 31, 2007
AUSTRALIA'S current account deficit jumped to a record $59.2 billion in 2006-07, as growth in import volumes again overwhelmed exports, and soaring dividends and interest bills pushed the country's income shortfall.
Bureau of Statistics figures show a big jump in net foreign liabilities underpinned Australia's overall growth in 2006-07. They rose by $90 billion, or 16 per cent, their fastest pace since the 1980s.By June 30, Australia's net foreign debt was $544 billion, or 52 per cent of gross domestic product, and net foreign liabilities $642 billion, or 61 per cent.A third of the growth in liabilities came from the rising exchange rate and soaring stock prices. These reduced the $A value of overseas assets owned by Australians while the share boom increased the value of foreign investment here.For the sixth year in a row, Australians invested more to buy overseas assets than foreigners invested to buy assets here. But that gap was overwhelmed by the rising exchange rate and share prices.As other figures showed that the assets of managed funds - already the fourth-largest in the world - swelled by $242 billion, or 22 per cent, Australia looks set to be a net equity investor for years to come.But in debt, the flow is the other way. Last year, Australians borrowed a net $58 billion from the rest of the world.In the past, the record current account deficit and foreign liabilities would have caused alarm among policymakers and markets. Not now. Even the usually cautious Reserve Bank governor Glenn Stevens told a parliamentary committee the current account deficit essentially reflected foreign investors' confidence in Australia.If so, they are being well paid for it. The bureau figures show the net income deficit ballooned from $39 billion a year earlier to $47 billion - and has almost doubled in three years.In that time, profit flows to foreign owners have risen from $21.8 billion to $42.2 billion - although almost half of that stays in the country as reinvested earnings.But most of the growth in the past two years was in interest payments to foreign lenders. Last year they shot up by 30 per cent to $33.6 billion, or $1 in every $30 the nation earned.The banks' interest bills to foreign lenders have more than doubled in three years, rising from $8.2 billion to $18.5 billion. At June 30, the banks owed a net $456 billion overseas, up from $100 billion a decade ago.The trade deficit declined from $14.5 billion to $12 billion, thanks to booming minerals prices. But the volume of goods exported grew just 1 per cent while imports grew 9 per cent.
© 2007 The Age