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5302.0 - Balance of Payments and International Investment Position, Australia, Dec 2010 Quality Declaration 
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ANALYSIS AND COMMENTS


BALANCE OF PAYMENTS


CURRENT ACCOUNT

In original current price terms, the December quarter 2010 current account deficit was $8,718m, a $626m increase on the September quarter 2010 deficit.

Current account balances, in seasonally adjusted and trend terms at current prices, are shown in the following table. During the quarter the terms of trade on net goods and services increased 1.1%.

Balance on Current Account in Current Prices - December Quarter 2010

Change in:
Current prices
Current prices
Current prices
$m
$m
%

Seasonally Adjusted

Balance on current account
-7 299
-809
-12.5
Balance on goods and services
6 756
726
12.0
Net goods
7 721
534
7.4
Net services
-965
192
16.6
Net primary income
-13 713
-1 545
-12.7
Net secondary income
-343
8
2.3

Trend

Balance on current account
-6 201
43
0.7
Balance on goods and services
6 847
524
8.3
Net goods
7 952
699
9.6
Net services
-1 104
-174
-18.7
Net primary income
-12 706
-512
-4.2
Net secondary income
-343
30
8.0




VOLUMES AND PRICES

Goods and Services

In seasonally adjusted chain volume terms, the balance on goods and services was a deficit of $472m, an increase of $24m on the September quarter 2010 deficit of $448m.

The net surplus on goods increased $697m (22%). Goods credits increased $2,444m (4%) and goods debits increased $1,747m (3%). The net deficit on services increased $722m (20%) on the September quarter 2010 deficit of $3,675m.

The increase in the balance on goods and services deficit, in seasonally adjusted chain volume terms, is expected to make no contribution to growth in the December quarter 2010 volume measure of GDP, assuming no significant revision to the GDP chain volume estimate for the September quarter 2010.

Goods and Services, CHAIN VOLUME MEASURES (a)
Graph: Goods and Services, CHAIN VOLUME MEASURES (a)



Terms of Trade and Implicit Price Deflator

Australia's seasonally adjusted terms of trade rose 1.1% to 110.7 with a decrease of 3.4% in the implicit price deflator (IPD) for goods and services credits and a decrease of 4.5% in the IPD for goods and services debits. The trend estimate of the terms of trade for net goods and services increased 1.5% to 111.0.

Implicit Price Deflator and Terms of Trade (a)
Graph: Implicit Price Deflator and Terms of Trade (a)



Goods

The trend estimate of net goods at current prices was a surplus of $7,952m, an increase of $699m (10%) on the September quarter 2010 surplus of $7,253m.

In seasonally adjusted terms at current prices, net goods recorded a surplus of $7,721m, an increase of $534m (7%) on the September quarter 2010 surplus of $7,187m.

Goods, Price and volume analysis: Seasonally Adjusted - December Quarter 2010

Change in:
Current prices
Current prices
Chain volume measures
Implicit price deflators
$m
%
%
%

Exports
-228
-0.4
3.9
-4.1
Rural goods
-16
-0.2
-2.6
2.4
Non-rural goods
-792
-1.6
4.2
-5.6
Net exports of goods under merchanting
-88
-114.3
-114.8
-1.3
Non-monetary gold
667
20.7
17.6
2.7
Imports
-762
-1.4
2.9
-4.2
Consumption goods
-349
-2.1
2.4
-4.5
Capital goods
-24
-0.2
5.7
-5.6
Intermediate and other merchandise
-775
-3.2
0.7
-3.9
Non-monetary gold
385
32.3
29.6
2.1




Services

Services, Price and volume analysis: Seasonally Adjusted - December Quarter 2010

Change in:
Current prices
Current prices
Chain volume measures
Implicit price deflators
$m
%
%
%

Exports
-129
-1.0
-1.1
0.1
Manufacturing services on physical inputs owned by others
7
14.3
14.9
0.4
Maintenance and repair services n.i.e.
4
28.6
30.8
0.4
Transport
-11
-0.7
-0.2
-0.4
Travel
-207
-2.5
-2.6
0.1
Other services
77
2.3
1.9
0.4
Imports
-322
-2.2
3.5
-5.5
Manufacturing services on physical inputs owned by others
-2
-66.7
-50.0
-6.8
Maintenance and repair services n.i.e.
12
23.5
32.8
-6.8
Transport
-342
-8.9
-6.6
-2.5
Travel
-19
-0.3
5.9
-5.9
Other services
31
0.7
8.0
-6.8




GOODS CREDITS

The trend estimate of goods credits at current prices rose $733m (1%) to $61,274m in the December quarter 2010.

In seasonally adjusted terms at current prices, goods credits fell $228m to $60,544m.


Rural Goods

Exports of rural goods, in seasonally adjusted terms at current prices, fell $16m to $7,139m, with volumes down 3% and prices up 2%. The components with the most significant movements were:
  • other rural, down $366m (11%), with volumes down 7% and prices down 5%
  • cereal grains and cereal preparations, up $316m (20%), with volumes up 2% and prices up 18%.


Non-rural Goods

Exports of non-rural goods, in seasonally adjusted terms at current prices, fell $792m (2%) to $49,521m, with volumes up 4% and prices down 6%. The main components contributing to the decrease were:
  • coal, coke and briquettes, down $1,299m (10%), with prices down 10%
  • other non-rural (incl. sugar and beverages), down $371m (11%), with volumes down 14% and prices up 3%
  • other mineral fuels, down $190m (3%), with volumes down 2% and prices down 2%.

Partly offsetting these decreases was the metal ores and minerals component, up $990m (5%), with volumes up 17% and prices down 10%.

Selected Major Commodities, CURRENT PRICES(a)
Graph: Selected Major Commodities, CURRENT PRICES(a)



Net Exports of Goods Under Merchanting

Net exports of goods under merchanting, in seasonally adjusted terms at current prices, fell $88m to -$11m with prices down 1%.


Non-monetary Gold

Exports of non-monetary gold, in seasonally adjusted terms at current prices, rose $667m (21%) to $3,894m, with volumes up 18% and prices up 3%.


GOODS DEBITS

The trend estimate of goods debits at current prices rose $34m to $53,322m in the December quarter 2010.

In seasonally adjusted terms at current prices, goods debits fell $762m (1%) to $52,823m.


Consumption Goods

Imports of consumption goods, in seasonally adjusted terms at current prices, fell $349m (2%) to $16,119m, with volumes up 2% and prices down 4%. The main components contributing to the decrease were:
  • consumption goods n.e.s., down $161m (3%), with volumes up 2% and prices down 5%
  • food and beverages, mainly for consumption, down $135m (6%), with volumes down 1% and prices down 5%.


Capital Goods

Imports of capital goods, in seasonally adjusted terms at current prices, fell $24m to $11,901m with volumes up 6% and prices down 6%. The main components contributing to the decrease were:
  • machinery and industrial equipment, down $262m (7%), with volumes down 2% and prices down 5%
  • ADP equipment, down $199m (10%), with prices down 10%.

Largely offsetting these decreases was the civil aircraft and other confidentialised items component, up $436m (44%) with volumes up 56% and prices down 8%.


Intermediate and Other Merchandise Goods

Imports of intermediate and other merchandise goods, in seasonally adjusted terms at current prices, fell $775m (3%) to $23,226m, with volumes up 1% and prices down 4%. The main components contributing to the decrease were:
  • other merchandise goods, down $405m (51%), with volumes down 49% and prices down 4%
  • processed industrial supplies n.e.s., down $260m (5%), with volumes up 2% and prices down 7%
  • other parts for capital goods, down $196m (5%), with prices down 5%
  • organic and inorganic chemicals, down $146m (12%), with volumes down 7% and prices down 6%.

Largely offsetting these decreases was the fuels and lubricants component, up $608m (9%) with volumes up 10% and prices down 1%.


Non-monetary Gold

Imports of non-monetary gold, in seasonally adjusted terms at current prices, rose $385m (32%) to $1,577m, with volumes up 30% and prices up 2%.


SERVICES

The trend estimate of net services at current prices was a deficit of $1,104m, an increase of $174m (19%) on the September quarter 2010 deficit of $930m.

In seasonally adjusted terms at current prices, net services recorded a deficit of $965m, a decrease of $192m (17%).


Services Credits

Services credits, in seasonally adjusted terms at current prices, fell $129m (1%) to $13,217m with volumes down 1%. The main component contributing to the decrease was:
  • travel, down $207m (3%), with volumes down 3%.

Partly offsetting this decrease was the other services component, up $77m (2%) with volumes up 2%.

In seasonally adjusted terms tourism related service credits fell $216m (2%) to $8,766m.


Services Debits

Services debits, in seasonally adjusted terms at current prices, fell $322m (2%) to $14,181m, with volumes up 4% and prices down 6%. The main component contributing to the decrease was:
  • transport, down $342m (9%), with volumes down 7% and prices down 2%. Freight transport decreased $279m (12%).

In seasonally adjusted terms tourism related service debits fell $74m (1%) to $7,766m.


PRIMARY INCOME

The trend estimate of the net primary income deficit at current prices increased $512m (4%) in the December quarter 2010 to $12,706m.

In seasonally adjusted terms, the net primary income deficit increased $1,545m (13%) in the December quarter 2010 to $13,713m.

In original terms, the primary income deficit decreased $69m (1%) to $13,347m in the December quarter 2010. Primary income credits increased $74m (1%) to $10,873m and primary income debits increased $5m to $24,220m.

NET PRIMARY INCOME
Graph: NET PRIMARY INCOME



Primary Income Credits

Primary income credits, in seasonally adjusted terms at current prices, increased $57m (1%) to $11,001m. The main contributors to the increase were:
  • a $184m (8%) increase in portfolio investment assets, interest
  • a $126m (3%) increase in direct investment assets, income on equity and investment fund shares
  • a $74m (20%) increase in other investment assets.

The above increases were partly offset by:
  • a $310m (11%) decrease in portfolio investment assets, investment income on equity and investment fund shares.


Primary Income Debits

Primary income debits, in seasonally adjusted terms at current prices, increased $1,601m (7%) to $24,713m. The main contributors to the increase were:
  • a $869m (9%) increase in direct investment liabilities, income on equity and investment fund shares
  • a $498m (7%) increase in portfolio investment liabilities, interest
  • a $200m (7%) increase in portfolio investment liabilities, investment income on equity and investment fund shares.


SECONDARY INCOME

The trend estimate of the net secondary income deficit at current prices, decreased $30m (8%) in the December quarter 2010 to $343m.

In seasonally adjusted terms the net secondary income deficit decreased $8m (2%) in the December quarter 2010 to $343m.


FINANCIAL ACCOUNT

The balance on financial account, in original terms, recorded a net inflow of $8.6b, with a net inflow of $10.5b of equity and a net outflow of $1.9b of debt.

The financial account surplus increased $0.5b from $8.1b in September quarter 2010 to $8.6b in December 2010, in line with the increase in the current account deficit which rose $0.6b from $8.1b last quarter to $8.7b this quarter.

Direct investment recorded a net inflow of $6.5b in December quarter 2010, a turnaround of $13.7b from the net outflow of $7.2b in September quarter 2010, where:
  • direct investment assets recorded an outflow of $3.9b, a decrease of $9.2b on the outflow of $13.1b in September quarter 2010
  • direct investment liabilities recorded an inflow of $10.4b, an increase of $4.5b on the inflow of $5.9b in September quarter 2010.

Portfolio investment recorded a net inflow of $17.6b, an increase of $0.8b on the net inflow of $16.9b in September quarter 2010. This was driven by:
  • debt securities recording a net inflow of $14.8b. Portfolio investment liabilities debt securities, decreased marginally by $0.3b from $21.0b in the September quarter 2010 to $20.6b in the December quarter 2010
  • equity and investment fund shares recording a net inflow of $2.9b.

Financial derivatives recorded a net outflow of $5.7b, a turnaround of $12.1b from the net inflow of $6.5b in the September quarter 2010. The main contributor was deposit-taking corporations, except the central bank, with a net outflow $7.0b.

Other investment recorded a net outflow of $8.7b, an increase of $2.9b from the net outflow of $5.8b in the September quarter 2010.

Reserve assets recorded a net outflow of $1.1b, a decrease of $1.1b from the net outflow of $2.2b in the September quarter 2010.


INTERNATIONAL INVESTMENT POSITION


ANALYSIS

Australia's net international investment position at 31 December 2010 was a net foreign liability of $782.1b, down $5.7b (1%) on the 30 September 2010 position of $787.8b.

The changes contributing to this result are shown in the following table.

International Investment Position, Summary - December Quarter 2010

Net international investment position
Net foreign equity
Net foreign debt
$m
$m
$m

Position at beginning of period
787 834
110 819
677 016
Changes in position reflecting
Transactions
8 621
10 537
-1 916
Price changes
-15 825
-9 454
-6 370
Exchange rate changes
2 780
20 642
-17 862
Other adjustments
-1 308
-710
-598
Total changes
-5 732
21 015
-26 746
Position at end of period
782 103
131 833
650 270




SUPPLEMENTARY INFORMATION


CONDITIONS

The conditions in the global economy continued to improve for most countries in the December quarter 2010. According to the Organisation for Economic Cooperation and Development (OECD), preliminary real GDP estimates in seasonally adjusted terms showed positive quarterly growth for: USA (0.8%), Korea (0.5%), Germany (0.4%), Italy (0.1%) and total EU (0.2%). Decreases were recorded in the UK (-0.5%) and Japan (-0.3%).

Net foreign asset and liability transactions were -$12.6b and $21.2b in the December quarter 2010, compared to -$16.4b and $24.6b respectively in the September quarter 2010.

The Australian share market, as measured by the MSCI global index, increased 2.9% in December quarter 2010, a decrease on the 6.4% increase in September quarter 2010. There were increases in all major markets: Germany 11.4%, USA 10.5%, Japan 8.8%, Canada 8.0%, UK 6.1%, Hong Kong 4.4%, Europe ex. UK 3.5%, Singapore 3.4%, France 3.1% and Switzerland 2.6%. The world index increased 8.6%. This is reflected in the price changes of -$29.7b in foreign assets and $13.9b in foreign liabilities during December quarter 2010.

According to Reuters, the composite corporate benchmark yield increased in the USA (4.62% to 5.45%), Germany (3.21% to 3.87%) and Japan (1.07% to 1.38%) while the yield decreased in the UK (5.50% to 4.57%). Long term government bond yields increased in all major markets over December quarter 2010. The 10 year government bond yields increased from 2.53% to 3.30% in the US, 2.95% to 3.40% in the UK, 2.26% to 2.89% in Germany, 0.93% to 1.12% in Japan and 5.00% to 5.56% in Australia. This is reflected in the market price changes for both portfolio debt securities liabilities (-$12.1b) and assets ($3.2b) in the December quarter 2010.

The AUD appreciated against most of the major currencies in the December quarter 2010. It increased against the UK pound sterling (8.0%), Euro (7.4%), the Hong Kong dollar (5.4%), USD (5.1%), the Chinese Renminbi (3.6%), Japanese yen (2.8%), the Canadian dollar (1.8%) and the New Zealand dollar (0.3%). The Trade Weighted Index (TWI) recorded an increase of 4.0%. The net impact of exchange rate changes was a decrease of $25.4b and $22.6b respectively on Australia's net foreign assets and foreign liabilities position.


RELATIONSHIP BETWEEN IPD, EPI AND IPI(footnote 1)

In original terms, the IPD for total goods credits fell 4.3% and the chain Laspeyres price index for goods exports fell 4.5%. The export price index (EPI) fell 8.1% during the December quarter 2010.

The EPI and IPD for the coal and cereal grains and cereal preparations components varied due to a number of factors including differences in pricing points, timing, coverage and weights.

In original terms, the IPD for total goods debits fell 4.3% and the chain Laspeyres price index for goods imports fell 3.8%. The import price index (IPI) fell 3.8% during the December quarter 2010.

Goods and Services, Price comparison - December Quarter 2010

Seasonally adjusted
Original
Implicit price deflators
Implicit price deflators
International Trade price indexes(a)
Chain Laspeyres price indexes
%
%
%
%

Exports
Goods
-4.1
-4.3
-8.1
-4.5
Services
0.1
0.1
na
0.3
Imports
Goods
-4.2
-4.3
-3.8
-3.8
Services
-5.5
-5.6
na
-5.2

na not available
(a) Source: International Trade Price Indexes, Australia (cat. no. 6457.0)

Implicit Price Deflators and International Trade Price Indexes
Graph: Implicit Price Deflators and International Trade Price Indexes



Commodity Price Indexes

The RBA Commodity Price Index (average monthly index) for rural commodities increased 8.7% between the September and December quarters 2010 while the EPI for rural goods total increased 1.6%.

The RBA Commodity Price Index for non-rural commodities decreased 5.4% while the EPI for non-rural goods total (excluding non-monetary gold) decreased 10.4%.


CALENDAR YEAR 2010 SITUATION


CURRENT ACCOUNT

In original terms, the balance on current account for 2010 was a deficit of $34.7b, a 35% decrease on the deficit of $53.2b recorded for 2009. The balance on goods and services surplus was $16.6b, a turnaround of $20.6b on the deficit of $4.1b recorded in 2009. Goods credits increased $34.1b (17%) and goods debits increased $10.8b (5%).

The 2010 services deficit of $3.2b was an increase of $2.7b on the deficit of $0.5b in 2009.

The 2010 net primary income deficit increased $1.9b (4%), with an increase in primary income credits of $6.1b (17%) and an increase in primary income debits of $8.0b (10%).

The 2010 secondary income deficit increased $0.2b (12%), with an increase in secondary income credits of $0.2b (3%) and an increase in secondary income debits of $0.3b (4%).


FINANCIAL ACCOUNT

The balance on financial account recorded a net inflow of $35.3b, with a net inflow on debt of $37.2b and a net outflow on equity of $1.9b. This result was down $20.2b on the net inflow of $55.5b recorded for the previous year as a result of:
  • a decrease of $25.4b on the net inflow on portfolio investment
  • a decrease of $11.5b on the net outflow on reserve assets
  • a turnaround of $7.2b to the net inflow on financial derivatives
  • an increase of $7.0b on the net outflow on other investment
  • a decrease of $6.6b to the net inflow on direct investment.


INTERNATIONAL INVESTMENT POSITION

Australia's net international investment position as at 31 December 2010 was a net foreign liability of $782.1b. This was up $7.2b (1%) on the position a year earlier as a result of:
  • net transactions of $35.3b
  • price changes of -$31.9b
  • exchange rate changes of $10.1b
  • other changes of -$6.2b.

During 2010, Australia's net foreign equity liability increased to $131.8b, up $14.5b (12%) on the previous calendar year, with exchange rate changes of $50.4b partially offset by price changes of -$26.3b, other changes of -$7.6b and net transactions of -$1.9b.

Australia's net foreign debt liability was $650.3b, down $7.3b (1%) on the previous calendar year, with exchange rate changes of -$40.3b and price changes of -$5.6b partially offset by net transactions of $37.2b and other changes of $1.4b.

At 31 December 2010, the ratio of Australia's net international investment position to GDP using the latest available GDP figure (for the year ended 30 September 2010 using current prices) was 59.4%. This compares with 62.1% one year ago and 51.3% one decade ago.

1 In this commentary movements in indexes are based on data to four decimal places. <back

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