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.
