Australia’s current account deficit in a global imbalances context

Phil Garton, Matt Sedgwick and Siddharth Shirodkar
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Phil Garton: Treasury, Government of Australia
Matt Sedgwick: Treasury, Government of Australia
Siddharth Shirodkar: Treasury, Government of Australia

Economic Roundup, 2010, issue 1, 29-50

Abstract: This article looks at Australia’s current account deficits in light of concerns about the role of external imbalances in the global financial crisis and the difficulties now facing a number of countries that have run large current account deficits in recent years. Australia is clearly differentiated from other deficit countries in that recent high deficits have been driven by rises in non-housing investment — mainly in response to high resource prices — while national saving has been increasing. This suggests that our deficits are less likely to reflect underlying imbalances in the economy.It is plausible that Australia could maintain large inflows of foreign capital for some time, given resource demands from China and India. This would imply a further rise in our net foreign liabilities as a share of GDP. However, the trade balance adjustment that will be needed eventually to stabilise this share does not appear onerous, particularly as investment in the resources sector will boost future export supply.

Keywords: current account; foreign direct investment; debt sustainability (search for similar items in EconPapers)
JEL-codes: F30 F32 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (1)

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