Australia's current account deficit narrowed broadly in line with expectations coming in at -$12.5bn in the December quarter (vs -$12bn forecast). The deficit had deteriorated to an 8-year wide (-$16.3bn) in the middle of 2024, but weaker import spending and a rebound in exports over the back half turned the tide slightly going into 2025. Movements in volume trade were modest in Q4: exports up 0.7% and imports firmer by 0.1%, dynamics the ABS estimates will translate into a 0.2ppt addition from net exports to quarterly GDP growth in tomorrow's national accounts.
The current account - a summary statement of Australia's trade and financial transactions with the rest of the world - was reported to be in deficit to the tune of $12.5bn in the December quarter (1.8% of GDP), in from a deficit of $13.9bn (revised from $14.1bn) in the September quarter (-2% of GDP). As the chart below shows, Australia has historically run current account deficits; however, this flipped during the pandemic period where sizeable surpluses were posted - largely due to very high commodity prices and border restrictions curtailing offshore travel. As these effects have faded, the current account has been reverting towards the historical experience.
Driving the narrower current account deficit in Q4 was an increase the trade balance - the difference between revenue from exports and spending on imports - to a surplus to $7.5bn (from $3.8bn); meanwhile, the income balance - the income earned by Australian residents from wages and investments offshore minus wages and dividends paid to foreign investors - was a deficit of $19.8bn in Q4, widening from $17.5bn deficit in Q3.
In nominal terms, Australian exports to the rest of the world were $162.1bn in Q4, an increase of 3.3% on the previous quarter. Higher export revenue was driven mainly by an uplift in prices (2.6%), rebounding from 3 consecutive declines, while underlying volumes rose modestly (0.7%). Coal and gas underpinned higher export prices, and strength from export volumes was predominantly in services (3.4%).
On the import side, spending was 0.9% higher in the quarter to $154.6bn. Prices were up 0.8% and volumes were near-flat (0.1%). Notably, services imports (dominated by travel) pulled back (-2.5%), posting just their second quarterly decline in the past 3 years. This was moderated by a 1.1% rise in goods imports, consumption goods (1.9%) - including vehicles and household goods - the main contributor.
From this, two key dynamics emerge: 1) the terms of trade (ratio of export to import prices) increased in Q4 (1.7%) - representing a boost to national income; and 2) export volumes (0.7%) outpaced imports (0.1%) - driving a positive contribution from net exports to GDP growth, estimated to be 0.2ppt.
Touching on the income deficit, it remained substantial in Q4 ($19.8bn) but is well off the peak of around $32bn in late 2022. Income fell in the quarter (-0.5%) reflecting lower returns from offshore investments; meanwhile, payments were higher (4.8%) on the back of increased interest servicing costs and returns to offshore investors.
