Sparkling export performance puts Australia in the box seat

THE depreciation of the dollar has had a huge effect on our export position in this country for a little while now.

This is emphasised by the release of the latest Current Account Deficit (CAD) figures for the June quarter. The result was that the CAD stood at $3.49 billion for the quarter. Importantly, it stood at 2 per cent of our GDP.

As a proportion of GDP, this is the lowest figure since the March quarter of 1980.

CommSec chief economist Craig James appears suitably impressed with the figure.

“There are no ifs and buts to muddy the best current account deficit in 21 years,” he says.

Mr James attributes the figure to a sparkling export performance and restrained growth of imports. This really means that we, as a nation, are clearly paying our way in the world. The trade account has moved to positive territory as well.

Looking more closely at the CAD figures reveals the following information.

p The CAD was $3487 million in the June Quarter as opposed to $4291 million in the March quarter. As indicated above, as a proportion of GDP, the result of 2 per cent is the best in 21 years. There was a sharp increase in the goods and services surplus, which rose from $798 million in the March quarter to $1565 million in the June quarter. The export of goods and services rose 4.9 per cent while imports rose by 2.9 per cent.

p The CAD figures also provide the net foreign debt position of our country. At the end of June, net foreign debt stood at $310.95 billion. Contrast this with the figure at the end of March, which stood at $324.93 billion. As a proportion of GDP, our indebtedness to the rest of the world eased from 48.8 per cent in the March quarter to 46.7 per cent in the June quarter. The debt-servicing ratio fell to 9.2 per cent in the June quarter. This is the best result in two years.

The message that had been brought to town a few weeks ago by Treasurer Peter Costello was that this was the first time since the 1960s that we were talking about a trading surplus.

The important part of that information is the addition to GDP as a result of the improved trading performance.

For the June quarter Mr James is anticipating that the Net Exports figure (measured by subtracting imports from exports) will contribute 0.3 percentage points to economic growth. Further, he expects that the next set of GDP data to be released to show that the economy is now quite firmly in recovery mode, with 0.5 per cent growth for the June quarter to follow the 1.1 per cent increase for March.

These two quarters of firm growth are not going to be enough to prevent the annual growth rate from falling below 2 per cent. Mr James expects that the annual economic growth rate for the June quarter will probably be around 1.4 per cent. This is the weakest result for more than nine years.

There are a number of pleasing aspects of the trade results. Aside from the obvious improvements that they display, one of the key issues appears to be the end of the decline in economic growth we have seen in recent times. It would appear, just as had been suggested by the OECD Leading Indicators, that Australia has turned the economic corner and we could see improvements from here.

Other Australian economic data that have been released tends to confirm this view. The latest figures from the Department of Employment, Workplace Relations and Small Business suggests that wage rises under Enterprise Agreements averaged annual growth of 3.9 per cent in the June quarter compared with the 3.7 per cent in the March quarter. The Australian PMI (Performance of Manufacturing Index) rose to 51.9 in August from 46.7 in July.

Generally a reading above 50 is said to imply an expansion of manufacturing activity. While this is not yet seen as an on-going monthly trend, it is promising and provides hope that this can be sustained.

Worldwide developments can still affect the Australian economy. The world economy does not appear to be headed anywhere, with US GDP figures being the slowest in eight years. For the last quarter, the world’s biggest economy recorded a 0.2 per cent growth rate. This was slightly higher than had been expected, with most economists forecasting a zero per cent growth rate. Nevertheless, it is the lowest figure since 1993.

This may well result in Federal Reserve chief Alan Greenspan having to take a punt on a further cut in interest rates there. That would be the most favoured course of action and should start to stabilise the economy in the US.

That, combined with the massive tax cuts and lower energy prices as we go into the Northern Hemisphere’s winter period (with its consequent higher demand for fuel), should start to revive that economy.

We await that with interest.

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