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Oz budget in deficit for first time in four years

Yes, we got another rate rise from the Reserve Bank yesterday but there was also an even bigger news item – the country’s first current account deficit in just over four years.

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The September quarter’s current account data from the Australian Bureau of Statistics revealed that the balance fell $17 billion to a deficit of $2.3 billion (seasonally adjusted) thanks to the conjunction of a number of key factors.

These were the continuing surge in overseas travel by Australians after the long lockdown and closed borders, higher oil and petrol prices and imports and a big rise in dividend flows from June 30 reporting companies to foreign investors in the quarter which is the end of financial year reporting period.

Floods in parts of Eastern Australia – especially around the NSW coalfields and Hunter Valley also played a part as exports ease a touch in the quarter which also helped produce the deficit.

The deficit followed 13 consecutive quarters of current account surpluses. The balance on goods and services decreased by $11.1 billion but remained in a surplus of $31.2 billion, while the net primary income deficit widened by $6.4 billion to $33.2 billion in the September quarter 2022.

ABS acting head of international statistics Grace Kim said in the release, “The current account deficit reflected a narrowing but robust trade surplus, which was offset by a record high income deficit in the September quarter.”

“Imports of goods and services increased 8.2%, with travel services driving the increase as Australians continued to travel overseas after prolonged border closures.

“The increase in goods imports was driven by fuels and lubricants with diesel the main contributor. Non-industrial transport equipment also rose with high imports of motor vehicles and a notable rise in imports of electric vehicles.”

Exports of goods and services eased 0.2% as shipments of mining commodities were disrupted during the quarter as east coast floods impacted key trading ports.

High rainfall throughout 2022 supported strong production and exports of agricultural commodities such as cotton.

Exports of travel services increased as arrivals of international students and tourists continued to rise following the re-opening of Australia’s international border earlier in the year.

The Terms of Trade fell 6.6% (a negative for today’s September national accounts and GDP data), driven by a decline in export prices with decreasing coal and metal prices.

This was partly offset by a rise in mineral fuels due to the price rise in oil-linked contracts and surging global demand.

The rise in import prices also contributed to the fall in the terms of trade.

But it was the financial services area that saw the biggest chance and helped produce the overall deficit.

The ABS said the net primary income deficit widened to a record $33.2 billion in the September quarter 2022.

“The key contributors to the record high income deficit were high operating profits, and increased non-resident investment in the resource sector, which contributed to strong dividend payments to non-resident portfolio investment.” Ms Kim explained.

The financial account recorded a surplus of $8.1 billion in the September quarter 2022, a turnaround of $24.7 billion. This was driven by a net inflow of equity of $7.7 billion and a net inflow of debt of $400 million.

At the same time the September quarter is also a key seasonal period for investment and income flows as it is when June balancing companies (full financial year or half years) declare dividends and make payments to shareholders.

With many big resource companies paying record or near record returns from solid to record earnings, there was a big outflow of money from Australia in the quarter, an outflow added to by a rise in the level of foreign investment in Australian companies.

Energy (oil, gas and coal), lithium, iron ore and some financiers all reported big profits and rising dividends for the quarter.

The deficit will detract 0.2% from GDP for the September quarter in today’s national accounts while government finances for the September quarter (also released yesterday) will also have the same impact on GDP, according to the ABS.

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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