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5302.0 - Balance of Payments and International Investment Position, Australia, March 2011 Quality Declaration 
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 31/05/2011   
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ANALYSIS AND COMMENTS


BALANCE OF PAYMENTS


CURRENT ACCOUNT

In original current price terms, the March quarter 2011 current account deficit was $9,447m, a $28m decrease on the December quarter 2010 deficit.

Current account balances, in seasonally adjusted and trend terms at current prices, are shown in the following table. During the March quarter the terms of trade on net goods and services increased 5.8% to 117.7, this is the highest result on record.

BALANCE ON CURRENT ACCOUNT IN CURRENT PRICES - March Quarter 2011

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

Seasonally Adjusted

Balance on current account
-10 447
-2 356
-29.1
Balance on goods and services
3 030
-3 336
-52.4
Net goods
4 832
-2 879
-37.3
Net services
-1 802
-457
-34.0
Net primary income
-13 229
935
6.6
Net secondary income
-247
46
15.7

Trend

Balance on current account
-8 183
-999
-13.9
Balance on goods and services
5 862
-327
-5.3
Net goods
7 613
14
0.2
Net services
-1 751
-341
-24.2
Net primary income
-13 796
-712
-5.4
Net secondary income
-249
40
13.8




VOLUMES AND PRICES

Goods and Services

In seasonally adjusted chain volume terms, the balance on goods and services was a deficit of $9,089m, an increase of $7,781m on the December quarter 2010 deficit of $1,308m.

The net deficit on goods was a turnaround of $7,119m on the December quarter 2010 surplus. Goods credits decreased $6,608m (10%) and goods debits increased $511m (1%). The net deficit on services increased $661m (14%) on the December quarter 2010 deficit of $4,775m.

The increase in the balance on goods and services deficit, in seasonally adjusted chain volume terms, is expected to detract 2.4 percentage points from growth in the March quarter 2011 volume measure of GDP, assuming no significant revision to the GDP chain volume estimate for the December 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 5.8% to 117.7 with an increase of 6.5% in the implicit price deflator (IPD) for goods and services credits and an increase of 0.6% in the IPD for goods and services debits. The trend estimate of the terms of trade for net goods and services increased 4.5% to 118.6.

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 $7,613m, an increase of $14m on the December quarter 2010 surplus of $7,599m.

In seasonally adjusted terms at current prices, net goods recorded a surplus of $4,832m, a decrease of $2,879m (37%) on the December quarter 2010 surplus of $7,711m.

GOODS, Price and volume analysis: Seasonally Adjusted - March Quarter 2011

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

Exports
-1 951
-3.2
-10.1
7.7
Rural goods
409
5.7
0.4
5.3
Non-rural goods
-2 217
-4.5
-11.9
8.5
Net exports of goods under merchanting
3
4.0
-
3.6
Non-monetary gold
-147
-3.8
-4.2
0.4
Imports
928
1.7
0.8
0.9
Consumption goods
-265
-1.7
-1.7
-
Capital goods
389
3.2
5.0
-1.7
Intermediate and other merchandise
1 334
5.7
1.9
3.8
Non-monetary gold
-529
-33.5
-33.2
-0.4

- nil or rounded to zero (including null cells)



Services

SERVICES, Price and volume analysis: Seasonally Adjusted - March Quarter 2011

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

Exports
-69
-0.5
-1.2
0.6
Manufacturing services on physical inputs owned by others
-13
-23.2
-24.1
0.8
Maintenance and repair services n.i.e.
-10
-55.6
-52.9
0.8
Transport
-17
-1.1
-1.4
0.3
Travel
-95
-1.2
-1.8
0.6
Other services
66
2.0
1.1
0.9
Imports
388
2.7
3.0
-0.3
Manufacturing services on physical inputs owned by others
-
-
-
-0.4
Maintenance and repair services n.i.e.
6
9.4
9.8
-0.4
Transport
81
2.3
2.1
0.1
Travel
234
3.7
4.1
-0.4
Other services
68
1.6
1.9
-0.4

- nil or rounded to zero (including null cells)



GOODS CREDITS

The trend estimate of goods credits at current prices fell $24m to $61,145m in the March quarter 2011.

In seasonally adjusted terms at current prices, goods credits fell $1,951m (3%) to $58,887m, with volumes down 10% and prices up 8%.


Rural Goods

Exports of rural goods, in seasonally adjusted terms at current prices, rose $409m (6%) to $7,538m with prices up 5%. The main components contributing to the increase were:
  • other rural, up $239m (8%), with volumes up 7% and prices up 2%
  • wool and sheepskins, up $155m (22%), with volumes up 4% and prices up 17%.


Non-rural Goods

Exports of non-rural goods, in seasonally adjusted terms at current prices, fell $2,217m (4%) to $47,535m, with volumes down 12% and prices up 8%. The main components contributing to the decrease were:
  • coal, coke and briquettes, down $2,614m (24%), with volumes down 27% and prices up 5%
  • other non-rural (incl. sugar and beverages), down $244m (8%), with volumes down 11% and prices up 3%.

Components partly offsetting these decreases were:
  • other mineral fuels, up $325m (6%), with volumes down 6% and prices up 13%
  • metals (excl. non-monetary gold), up $231m (7%), with volumes up 3% and prices up 4%
  • transport equipment, up $190m (22%), with volumes up 19% and prices up 3%.
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, rose $3m (4%) to $78m with prices up 4%.


Non-monetary Gold

Exports of non-monetary gold, in seasonally adjusted terms at current prices, fell $147m (4%) to $3,736m, with volumes down 4%.


GOODS DEBITS

The trend estimate of goods debits at current prices fell $38m to $53,532m in the March quarter 2011.

In seasonally adjusted terms at current prices, goods debits rose $928m (2%) to $54,055m, with volumes up 1% and prices up 1%.


Consumption Goods

Imports of consumption goods, in seasonally adjusted terms at current prices, fell $265m (2%) to $15,778m, with volumes down 2%. The main components contributing to the decrease were:
  • toys, books and leisure goods, down $145m (12%), with volumes down 11% and prices down 2%
  • non-industrial transport equipment, down $64m (2%), with volumes down 1% and prices down 1%.


Capital Goods

Imports of capital goods, in seasonally adjusted terms at current prices, rose $389m (3%) to $12,633m with volumes up 5% and prices down 2%. The main components contributing to the increase were:
  • capital goods n.e.s., up $165m (10%), with volumes up 12% and prices down 2%
  • machinery and industrial equipment, up $161m (4%), with volumes up 6% and prices down 1%
  • industrial transport equipment n.e.s., up $68m (4%), with volumes up 6% and prices down 2%.


Intermediate and Other Merchandise Goods

Imports of intermediate and other merchandise goods, in seasonally adjusted terms at current prices, rose $1,334m (6%) to $24,596m, with volumes up 2% and prices up 4%. The main components contributing to the increase were:
  • fuels and lubricants, up $722m (10%), with volumes down 3% and prices up 13%
  • processed industrial supplies n.e.s., up $529m (10%), with volumes up 10%
  • parts for transport equipment, up $157m (8%), with volumes up 9% and prices down 1%.


Non-monetary Gold

Imports of non-monetary gold, in seasonally adjusted terms at current prices, fell $529m (34%) to $1,048m, with volumes down 33%.


SERVICES

The trend estimate of net services at current prices was a deficit of $1,751m, an increase of $341m (24%) on the December quarter 2010 deficit of $1,410m.

In seasonally adjusted terms at current prices, net services recorded a deficit of $1,802m, an increase of $457m (34%).


Services Credits

Services credits, in seasonally adjusted terms at current prices, fell $69m (1%) to $12,886m with volumes down 1% and prices up 1%. The main components contributing to the decrease were:
  • travel, down $95m (1%), with volumes down 2% and prices up 1%
  • transport, down $17m (1%) with volumes down 1%.

Offsetting these decreases was the other services component, up $66m (2%), with volumes up 1% and prices up 1%.

In seasonally adjusted terms, tourism related service credits fell $117m (1%) to $8,616m.


Services Debits

Services debits, in seasonally adjusted terms at current prices, rose $388m (3%) to $14,688m, with volumes up 3%. The components with the most significant increases were:
  • travel, up $234m (4%), with volumes up 4%
  • transport, up $81m (2%), with volumes up 2%
  • other services, up $68m (2%), with volumes up 2%.

In seasonally adjusted terms tourism related service debits rose $306m (4%) to $8,140m.


PRIMARY INCOME

The trend estimate of the net primary income deficit at current prices increased $712m (5%) in the March quarter 2011 to $13,796m.

In seasonally adjusted terms, the net primary income deficit decreased $935m (7%) in the March quarter 2011 to $13,229m.

NET PRIMARY INCOME
Graph: NET PRIMARY INCOME



Primary Income Credits

Primary income credits, in seasonally adjusted terms at current prices, decreased $858m (8%) to $10,109m. The main contributors to the decrease were:
  • a $832m (18%) decrease in direct investment assets, income on equity and investment fund shares
  • a $116m (4%) decrease in portfolio investment assets, investment income on equity and investment fund shares.

These decreases were partly offset by a $58m (2%) increase in portfolio investment assets, interest.


Primary Income Debits

Primary income debits, in seasonally adjusted terms at current prices, decreased $1,793m (7%) to $23,338m. The main contributors to the decrease were:
  • a $1,767m (16%) decrease in direct investment liabilities, income on equity and investment fund shares
  • a $467m (6%) decrease in portfolio investment liabilities, interest.

These decreases were partly offset by a $284m (9%) increase in portfolio investment liabilities, investment income on equity and investment fund shares.


SECONDARY INCOME

The trend estimate of net secondary income deficit at current prices, decreased $40m (14%) in the March quarter 2011 to $249m.

In seasonally adjusted terms the net secondary income deficit at current prices, decreased $46m (16%) in the March quarter 2011 to $247m.


FINANCIAL ACCOUNT

The balance on financial account, in original terms, recorded a net inflow of $9.9b, with a net inflow of $22.6b of debt and a net outflow of $12.7b of equity.

The financial account surplus increased $0.7b from $9.2b in December quarter 2010 to $9.9b in March quarter 2011.

Direct investment recorded a net inflow of $2.5b in March quarter 2011, a decrease of $4.0b from the net inflow of $6.6b in December quarter 2010, where:
  • direct investment liabilities recorded an inflow of $5.3b, a decrease of $5.7b on the inflow of $11.0b in December quarter 2010
  • direct investment assets recorded an outflow of $2.8b, a decrease of $1.7b on the outflow of $4.5b in December quarter 2010.

Portfolio investment recorded a net outflow of $1.3b, a turnaround of $20.7b on the net inflow of $19.4b in the December quarter 2010. This was driven by:
  • equity and investment fund shares recording a net outflow of $12.7b
  • debt securities recording a net inflow of $11.4b.

Portfolio investment liabilities debt securities decreased by $1.7b from $20.6b in the December quarter 2010 to $18.9b in the March quarter 2011.

Financial derivatives recorded a net outflow of $6.7b, an increase of $0.9b from the net outflow of $5.7b in the December quarter 2010. The main contributor was deposit-taking corporations, except the central bank with a net outflow of $4.2b.

Other investment recorded a net inflow of $8.8b, a turnaround of $18.7b from the net outflow of $9.9b in the December quarter 2010.

Reserve assets recorded a net inflow of $6.6b, a turnaround of $7.7b from the net outflow of $1.1b in the December quarter 2010.


INTERNATIONAL INVESTMENT POSITION


ANALYSIS

Australia's net international investment position at 31 March 2011 was a net foreign liability of $780.6b, up $6.3b (1%) on the 31 December 2010 position of $774.3b.

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

INTERNATIONAL INVESTMENT POSITION, Summary - March Quarter 2011

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

Position at beginning of period
774 265
126 755
647 510
Changes in position reflecting
Transactions
9 900
-12 741
22 641
Price changes
-5 792
-10 051
4 259
Exchange rate changes
3 453
1 072
2 380
Other adjustments
-1 255
-1 784
529
Total changes
6 306
-23 504
29 809
Position at end of period
780 570
103 251
677 320




SUPPLEMENTARY INFORMATION


CONDITIONS

The conditions in the global economy continued to improve for most countries in the March quarter 2011. According to the Organisation for Economic Cooperation and Development (OECD), preliminary real GDP estimates in seasonally adjusted terms showed positive quarterly growth for: Germany (1.5%), Korea (1.4%), total EU (0.8%), UK (0.5%) and USA (0.4%).

Australia's international investment activities increased moderately during the quarter. Foreign asset and liability transactions were -$9.0b and $18.9b in the March quarter 2011, compared to -$14.0b and $23.2b respectively in the December quarter 2010.

The Australian share market, as measured by the MSCI global index, increased 2.3% in March quarter 2011, a decrease of 0.6% on the 2.9% increase in December quarter 2010. There were increases in most major markets: Europe ex. UK 7.4%, USA 5.4%, Canada 5.3%, France 4.5%, Germany 1.3% and the UK 0.4%. The world index increased 4.3%. Market decreases were seen in: Singapore -2.3%, Switzerland -1.2% and Hong Kong -0.7%. A market price change of $10.1b was recorded for foreign equity assets while the market price change for foreign equity liabilities was insignificant during March quarter 2011.

According to Reuters, the composite corporate benchmark yield increased in the UK (4.57% to 4.72%), USA ( 4.18% to 4.19%), Germany (3.87% to 4.16%) and Japan (1.38% to 1.50%). Long term government bond yields increased in all major markets over March quarter 2011. The 10 year government bond yields increased from 3.30% to 3.47% in the US, 3.40% to 3.69% in the UK, 2.89% to 3.35% in Germany and 1.12% to 1.26% in Japan. In Australia, the rate decreased from 5.56% to 5.44%. This is reflected in the market price changes for both portfolio debt securities liabilities (-$0.4b) and assets ($0.9b) in the March quarter 2011.

The AUD appreciated against a number of the major currencies in the March quarter 2011. It increased against the Japanese yen (3.3%), the New Zealand dollar (3.2%), the Hong Kong dollar (1.8%), the USD (1.7%) and the Chinese Renminbi (1.1%). The AUD decreased against the Euro (-4.4%), UK pound sterling (-2.5%) and the Canadian dollar (-1.3%). The Trade Weighted Index (TWI) recorded an increase of 0.7%. The net impact of exchange rate changes was an increase of $2.1b and $5.5b 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 rose 7.4% and the chain Laspeyres price index for goods exports rose 5.8%. The export price index (EPI) rose 5.2% during the March quarter 2011.

The EPI for wool and sheepskins component rose 22.9% while the IPD rose 16.9%, this is due to a number of factors including differences in pricing points, timing, coverage and weights.

In original terms, the IPD for total goods debits rose 1.2% and the chain Laspeyres price index for goods imports rose 1.3%. The import price index (IPI) rose 1.4% during the March quarter 2011.

GOODS AND SERVICES, Price comparison - March Quarter 2011

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

Exports
Goods
7.7
7.4
5.2
5.8
Services
0.6
0.6
na
0.7
Imports
Goods
0.9
1.2
1.4
1.3
Services
-0.3
-0.3
na
-0.3

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(footnote 2) (average monthly index) for rural commodities increased 12.5% between the December 2010 and March 2011 quarters while the EPI for rural goods total increased 5.8%.

The RBA Commodity Price Index for non-rural commodities increased 6.7% while the EPI for non-rural goods total (excluding non-monetary gold) increased 5.6%.

1 In this commentary movements in indexes are based on data to four decimal places. <back
2 For RBA Commodity Price Index methodology, see paragraph 23 of the Explanatory Notes. <back

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