Australia’s Current Account Deficit Widens on Exports

By Jacob Greber

Sept. 1 (Bloomberg) -- Australia’s current account deficit widened more than expected in the three months through June as exports of coal, iron ore and farm goods tumbled.

The shortfall on goods, services and investment more than doubled from the first quarter to A$13.3 billion ($11 billion), the most in a year, the Bureau of Statistics said in Sydney today. The median estimate in a Bloomberg survey of 17 economists was for a A$10.7 billion gap.

Central bank Governor Glenn Stevens will probably keep the benchmark interest rate at a 49-year low of 3 percent today for a fifth month to spur domestic demand that may be waning as government handouts to consumers end, economists predict. Net exports subtracted 0.2 percentage points from gross domestic product in the quarter, the statistics bureau said.

“The blowout in the deficit is driven by the global recession,” and falling coal and iron ore prices, said Su-Lin Ong, senior economist at RBC Capital Markets Ltd. in Sydney. Australia’s economy probably expanded in the second quarter, “but only just,” she added.

Exports tumbled 19 percent to A$47.6 billion in the quarter as shipments of rural goods slid 9 percent, coal slumped 26 percent and iron ore declined 21 percent, today’s report said.

The Australian dollar rose to 84.40 U.S. cents at 12:05 p.m. in Sydney from 84.32 cents just before the report was released. The two-year government bond yield rose 1 basis points to 4.58 percent. A basis point is 0.01 percentage point.

Demand Plunges

The current account is the broadest measure of trade because it includes investment flows as well as goods and services shipments. A deficit represents money Australia has to borrow overseas to pay for the goods and services it imports, and to finance investment not covered by local savings.

BHP Billiton Ltd., the world’s largest mining company, reported last month a 65 percent decline in second-half profit after metals prices and demand plunged during the global recession. Chief Executive Officer Marius Kloppers said on Aug. 20 that global demand for metals won’t rise beyond what is required to rebuild stockpiles for the remainder of this year.

“The weakness in the global economy over the past year has contributed to a significant decline in commodity prices and Australia’s terms of trade,” a measure of income from exports, the central bank said on Aug. 7.

The terms of trade will fall by about 20 percent from their 2008 peak, the central bank predicted last month. This would still leave them around 45 percent above the average that prevailed during the 20 years through 2000.

Interest Rates

To offset falling global demand for exports of natural resources, the government has distributed more than A$20 billion in cash to households since the collapse of Lehman Brothers Holdings Inc. almost a year ago, and is spending another A$22 billion upgrading schools, railways, roads and ports.

Policy makers also slashed the benchmark interest rate by a record 4.25 percentage points between September and April. All 17 economists surveyed by Bloomberg News expect Governor Stevens will keep the rate unchanged at 2:30 p.m. today in Sydney.

Gross domestic product probably expanded 0.6 percent from the first quarter, when it gained 0.4 percent, according to the median forecast in a Bloomberg survey of economists taken yesterday. The GDP figures will be published tomorrow at 11:30 a.m. in Sydney.

The net income deficit widened to A$11.49 billion in the second quarter from A$10.43 billion in the previous three months, today’s report showed. The goods and services trade balance swung to a deficit of A$1.67 billion from a A$4.27 billion surplus.

A separate report published today showed home-building approvals rose in July for a second month, climbing 7.7 percent. Approvals to build apartments surged 35.3 percent.

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net