Australia Current Account -$21.1bn in Q4; net exports -0.1ppt

Australia's current account deficit widened to $21.1bn in the December quarter from $18.3bn in the September quarter. At almost 3% of GDP, this was the largest deficit seen since the middle of 2018. Solid growth in imports (1.8%) reflected the ongoing strength in domestic demand, outpacing exports (1.4%). Overall, net exports are expected to deduct 0.1ppt from GDP growth in the December quarter.     

 

The current account deficit was $21.1bn in the December quarter, some $2.8bn larger than in the previous quarter, with payments to foreign investors increasing as domestic investors saw lower returns from investments offshore. This was the 11th consecutive deficit, and the widest in 10 years. Measured another way, the deficit was 2.9% of nominal GDP (using Q3's nominal GDP), the largest since Q2 2018.   

Only around 4 years ago, the current account was printing record surpluses of more than 3% of GDP, delivering a significant revenue windfall for Australia. Since then, commodity prices have come off their highs and the post-Covid surge in inflation drove up import prices. Those dynamics are reflected in the rollover in the terms of trade. But Australia's floating exchange rate buffered the economy from an income shock, with current account deficits weighing on the AUD, a boost for exports. But if the recent strength in the AUD is sustained - it is currently at its highest since 2018 on a trade-weighted basis - then the macro dynamic changes.  

The trade surplus was a wafer-thin $1.3bn in the December quarter. Exports rose by 3.2% to around $172bn, with prices up 1.9% and underlying volumes lifting by 1.4%. The key driver of volumes was iron ore (3.9%), which saw its strongest rise since mid-2020. Spending on imports rose by 3.3% to $170bn. Within this, import prices increased by 1.4% and volumes lifted by 1.8%. Consumption goods volumes increased by 2.5%, with gains across items such as clothing and footwear, vehicles and household appliances, indicating consumer demand remained robust. 

Due to the 1.8% rise in import volumes outpacing the 1.4% growth in exports, the net exports component is estimated to weigh on GDP growth in the December quarter by 0.1ppt. Expectations were for a 0.3ppt reduction, so this was an upside surprise.   

Australian Business Indicators Q4: inventories -0.1%

Australia's Business Indicators data were broadly reflective of a solid domestic economy in the December quarter. Sales volumes rose by 0.6% to be up by 1.2% across the back half of 2025, lifting from growth of 0.9% in the first half. Robust demand is seeing inventories decline, which fell for the second quarter in succession, and supporting rising company profits.  

Ahead of the National Accounts on Wednesday, today's report on the business sector suggests that private inventories will add 0.2ppt to GDP growth in the December quarter. Strong demand is seeing inventory levels decline. But the decline in the latest quarter was a smaller 0.1% compared to 0.8% in the previous quarter, a dynamic that will add positively to GDP.   

As highlighted, demand has been robust. Sales rose by 0.6% in the December quarter and 2.1% through the year. The chart below shows that sales have risen broadly across the economy in the December (green bars) and September quarters (gold bars). The only surprise was the decline in arts and recreation in the latest quarter (-1.5%) given the reporting has been that major events and concerts were well attended, but this follows several quarters of strong growth.  

The domestic demand backdrop and higher commodity prices drove company profits to increase by 5.8% in the December quarter, their fastest rise in three years. On an inventory adjusted basis (a closer methodology to that used in the National Accounts), profits were up 4.8% in the quarter. Profits in the non-mining sector rose by a solid 4.4% for the quarter while the mining profits accelerated by 8.1% - the fastest growth recorded since the middle of 2022.   

Wage incomes continued to rise, albeit at a slower clip of 0.9% in the December quarter. Prior to this, wages rose in excess of 1% in each of the preceding six quarters. Annual growth slowed modestly but was still running at a healthy pace (5.6%).