Australia's Current Account Deficit: Two  Economist's View. (June 6, 2006)

    The Australian Bureau of Statistics (ABS) today reported a seasonally adjusted current account deficit of $13.999 billion in the March quarter from a downwardly revised $14.330 billion in the December quarter and below the median market forecast of $14.8 billion.

Commsec chief equities economist Craig James said that while the result was better than expected, it was still a huge deficit. "No one should be complacent, not just about the size of our current account deficit, but also the size of our foreign debt. Clearly Australia ranks up with quite a number of the less developed economies in terms of its debt to GDP (gross domestic product) ratio."

According to ABS figures, Australia's net foreign debt rose 5 per cent to $493.480 billion in the March quarter, up from the December quarter, and compared to $423.929 billion of a year ago.

ICAP's head of economics and strategy Michael Thomas said Australia's debt to GDP ratio was still heading in the wrong direction. "While we got a 6-per-cent current account deficit it is going to keep rising and 6 per cent is an unsustainable level. Roughly speaking we need to get it for Australia to around 3 per cent for our debt to level out as a per cent of GDP, [and] we are a long, long way from seeing that happen. And this emphasises the need to boost national savings, so we don't have to borrow as much from offshore."
 

He went on to say, "The countries that have large current account deficits have seen their currencies weaken over time and the US dollar is a classic example of a currency that is gradually being sold off but isn't dramatically moving on current account news, [and our current account deficit] will be a weight that will slowly grind away on the Aussie dollar."

Not to worry, the Coalition government keeps building multi-billion dollar surpluses and squandering them on what it determines to be immediate vote-getting initiatives.