Further Links Contact Us Search Help

Syllabus | Exams | Glossary | Resources | Careers | Teachers

Economics

Home > Economics > Australia's place in the global economy > Australia's balance of payments

Review exercise 4

2. Factors that could impact on the current account deficit are:
   • Australia’s export base is heavily weighted towards primary products. The prices and demand for primary products reflect movements in the international business cycle. For example, the Asian economic crisis in 1997 and the global recession during 2001–2002 would have affected Australia’s export earnings.
     
     
   • The terms of trade can also affect the CAD, for example in second half of the 1990s the terms of trade deteriorated. This means that the same volume of exports now purchases less imports. The deficit on the balance of goods and services increased and so did the CAD and foreign liabilities.
     
     
   • The cost of servicing foreign liabilities is a major problem. As the level of foreign liabilities increases so does the net income component of the current account. Higher overseas interest rates or a depreciation in the value of the Australian dollar would increase debt repayments.
     
     
   • One major area of concern is has been the lack of international competitiveness. Australian exporting industries have become more competitive in global markets with structural changes. Reforms, especially in the labour market have reduced production costs and increased export sales.

Back