Australia is no stranger to current account deficit- it has been a constant companion for more than a century, at least. However, the September quarter has seen a 10% reduction in current account deficits. The Australian Bureau of Statistics was expecting a slight reduction in the deficit- but not to the tune of 10%. This is just a sweet surprise, in a way.
Current account is the account that measures the international flow of income. The current account measures transfer of dividends, aid, interest payments, etc. between Australia and other countries. The second quarter of this year saw a doubling of deficit, thanks to decreasing exports and a perceivable drop in commodity prices. However, exports have picked up again and this surplus supply has caused the deficit to slim from $13.9 billion to $12.5 billion.
This has been a fairly good year for the Australian economy, at least as far as current account deficits are concerned, since it hit a three decade low! The Australian economy has seen a surplus supply thanks to increasing exports. Australia’s trade agreements with China and Japan and other countries might have something to do with this. It might certainly help the country’s economy to promote trade agreements with other countries.
So I was reading an article recently about the exports to China slowing down. Apparently this has had a negative effect on the Australian economy. Who knew we were so intimately linked to the Asian market. So what is the reality of the Australian economy now with its linkages to China?
“China is a big reason for that economic resilience. Australia sailed through its toughest challenge, the global financial crisis, thanks largely to China’s appetite for mined-in-Australia iron ore, coal, and other minerals. China is Australia’s No. 1 trading partner, accounting for more than a third of its exports.”
So Australian exports are contributing to the growth of the Chinese economy and also contributing to the economic bubble that the Australian population has been living in for the past 2 decades. It’s similar to other cases such as Canada where it was not hit as hard as the U.S. due to their exports as well and their oil. Now that China has cut down on its use of Australian coal the Australian companies have been diversifying to keep the economy fresh. They have been reaching out into other industries such as cattle ranching and finding new inventive commodities to export to China as the middle class grows. A very interesting outlook on the dynamism of the market and from North-South trade from a new angle.