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5302.0 - Balance of Payments and International Investment Position, Australia, Sep 2010 Quality Declaration 
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 30/11/2010   
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ANALYSIS AND COMMENTS


BALANCE OF PAYMENTS


CURRENT ACCOUNT

In original current price terms, the September quarter 2010 current account deficit was $9,285m, a $5,801m increase on the June quarter 2010 deficit. During the quarter the terms of trade on net goods and services increased 1%. The September quarter 2010 deficit was primarily funded by a net increase in direct investment equity liabilities.

Current account balances, in seasonally adjusted and trend terms at current prices, are shown in the following table.

Balance on Current Account in Current Prices - September Quarter 2010

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

Seasonally Adjusted

Balance on current account
-7 830
-2 417
-44.7
Balance on goods and services
5 773
-797
-12.1
Net goods
6 539
-508
-7.2
Net services
-766
-289
-60.6
Net primary income
-13 166
-1 663
-14.5
Net secondary income
-438
41
8.6

Trend

Balance on current account
-6 739
924
12.1
Balance on goods and services
6 309
938
17.5
Net goods
7 032
1 104
18.6
Net services
-724
-167
-30.0
Net primary income
-12 586
-2
-
Net secondary income
-462
-13
-2.9

- nil or rounded to zero (including null cells)



VOLUMES AND PRICES

Goods and Services

In seasonally adjusted chain volume terms, the balance on goods and services was a deficit of $68m, a turnaround of $1,457m on the June quarter 2010 surplus.

The net surplus on goods decreased $1,036m (25%). Goods credits decreased $1,802m (3%) and goods debits decreased $766m (1%). The net deficit on services increased $422m (15%) on the June quarter 2010 deficit of $2,818m.

The turnaround in the balance on goods and services to a deficit, in seasonally adjusted chain volume terms, is expected to detract 0.4 percentage points from growth in the September quarter 2010 volume measure of GDP, assuming no significant revision to the GDP chain volume estimate for the June 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 0.8% to 108.6 with an increase of 1.2% in the implicit price deflator (IPD) for goods and services credits and an increase of 0.4% in the IPD for goods and services debits. The trend estimate of the terms of trade for net goods and services increased 1.6% to 109.2.

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 $7,032m, an increase of $1,104m (19%) on the June quarter 2010 surplus of $5,928m.

In seasonally adjusted terms at current prices, net goods recorded a surplus of $6,539m, a decrease of $508m (7%) on the June quarter 2010 surplus of $7,047m.

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

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

Exports
-944
-1.5
-2.8
1.3
Rural goods
355
5.2
7.1
-1.7
Non-rural goods
15
-
-2.3
2.3
Net exports of goods under merchanting
12
16.9
16.0
1.7
Non-monetary gold
-1 326
-29.1
-28.4
-1.0
Imports
-436
-0.8
-1.3
0.5
Consumption goods
222
1.4
1.7
-0.3
Capital goods
-465
-3.7
-3.8
-
Intermediate and other merchandise
963
4.2
1.9
2.2
Non-monetary gold
-1 156
-48.6
-48.9
0.5

- nil or rounded to zero (including null cells)



Services

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

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

Exports
29
0.2
-0.6
0.8
Manufacturing services on physical inputs owned by others
-1
-2.0
-4.1
0.9
Maintenance and repair services n.i.e.
5
55.6
44.4
0.9
Transport
21
1.4
0.7
0.7
Travel
-40
-0.5
-1.3
0.9
Other services
44
1.3
0.6
0.7
Imports
318
2.3
2.2
0.1
Manufacturing services on physical inputs owned by others
3
-
-
-
Maintenance and repair services n.i.e.
-27
-35.1
-34.8
-0.4
Transport
2
0.1
-1.6
1.6
Travel
255
4.2
4.7
-0.4
Other services
84
2.1
2.4
-0.3

- nil or rounded to zero (including null cells)



GOODS CREDITS

The trend estimate of goods credits at current prices rose $2,158m (4%) to $60,998m in the September quarter 2010.

In seasonally adjusted terms at current prices, goods credits fell $944m (2%) to $60,294m.


Rural Goods

Exports of rural goods, in seasonally adjusted terms at current prices, rose $355m (5%) to $7,174m, with volumes up 7% and prices down 2%. The components contributing to the increase were:
  • cereal grains and cereal preparations, up $207m (16%), with volumes up 17% and prices down 1%
  • other rural, up $190m (6%), with volumes up 6%.


Non-rural Goods

Exports of non-rural goods, in seasonally adjusted terms at current prices, rose $15m to $49,810m, with volumes down 2% and prices up 2%. The main component contributing to the increase was other non-rural (including sugar and beverages), up $285m (9%), with volumes up 14% and prices down 5%.

Components partly offsetting this increase were:
  • other mineral fuels, down $97m (2%), with volumes down 2% and prices up 1%
  • metal ores and minerals, down $70m, with volumes down 6% and prices up 6%
  • other manufactures, down $55m (1%), with volumes down 2%
  • transport equipment, down $50m (5%), with volumes down 3% and prices down 2%.
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 $12m (17%) to $83m, with volumes up 16% and prices up 2%.


Non-monetary Gold

Exports of non-monetary gold, in seasonally adjusted terms at current prices, fell $1,326m (29%) to $3,227m, with volumes down 28% and prices down 1%. This followed a 36% increase in the June quarter 2010.


GOODS DEBITS

The trend estimate of goods debits at current prices rose $1,054m (2%) to $53,965m in the September quarter 2010.

In seasonally adjusted terms at current prices, goods debits fell $436m (1%) to $53,755m.


Consumption Goods

Imports of consumption goods, in seasonally adjusted terms at current prices, rose $222m (1%) to $16,521m, with volumes up 2%. The main components contributing to the increase were:
  • consumption goods n.e.s., up $278m (6%), with volumes up 5% and prices up 1%
  • food and beverages, mainly for consumption, up $144m (7%), with volumes up 8% and prices down 1%.

Partly offsetting these increases was the non-industrial transport equipment component, down $267m (6%), with volumes down 5% and prices down 1%.


Capital Goods

Imports of capital goods, in seasonally adjusted terms at current prices, fell $465m (4%) to $11,980m with volumes down 4%. The main components contributing to the decrease were:
  • industrial transport equipment n.e.s., down $276m (14%), with volumes down 17% and prices up 3%
  • machinery and industrial equipment, down $203m (5%), with volumes down 7% and prices up 2%
  • civil aircraft and other confidentialised items, down $147m (13%), with volumes down 14% and prices up 1%.

Partly offsetting these decreases was the telecommunications equipment component, up $179m (11%) with volumes up 10% and prices up 1%.


Intermediate and Other Merchandise Goods

Imports of intermediate and other merchandise goods, in seasonally adjusted terms at current prices, rose $963m (4%) to $24,032m, with volumes up 2% prices up 2%. The main components contributing to the increase were:
  • other merchandise goods, up $552m. The Department of Defence imported six Super Hornets
  • other parts for capital goods, up $341m (10%), with volumes up 10% and prices up 1%
  • processed industrial supplies n.e.s., up $134m (3%), with volumes down 4% and prices up 7%.

Partly offsetting these increases was the fuels and lubricants component, down $350m (5%) with volumes down 4% and prices down 1%.


Non-monetary Gold

Imports of non-monetary gold, in seasonally adjusted terms at current prices, fell $1,156m (49%) to $1,221m, with volumes down 49% and prices up 1%. This followed a 68% increase in the June quarter 2010.


SERVICES

The trend estimate of net services at current prices was a deficit of $724m, an increase of $167m (30%) on the June quarter 2010 deficit of $557m.

In seasonally adjusted terms at current prices, net services recorded a deficit of $766m, an increase of $289m (61%) on the June quarter 2010 deficit of $477m.


Services Credits

Services credits, in seasonally adjusted terms at current prices, rose $29m to $13,329m, with volumes down 1% and prices up 1%. The main components contributing to the increase were:
  • other services, up $44m (1%), with volumes up 1% and prices up 1%
  • transport, up $21m (1%), with volumes up 1% and prices up 1%.

Partly offsetting these increases was the travel component, down $40m, with volumes down 1% and prices up 1%.

In seasonally adjusted terms tourism related service credits rose $2m to $9,027m.


Services Debits

Services debits, in seasonally adjusted terms at current prices, rose $318m (2%) to $14,095m, with volumes up 2%. The main components contributing to the increase were:
  • travel, up $255m (4%), with volumes up 5%
  • other services, up $84m (2%), with volumes up 2%.

Partly offsetting these increases was the maintenance and repair services n.i.e. component, down $27m (35%), with volumes down 35% .

In seasonally adjusted terms tourism related service debits rose $285m (4%) to $7,612m.


PRIMARY INCOME

The trend estimate of the net primary income deficit at current prices increased $2m in the September quarter 2010 to $12,586m.

In seasonally adjusted terms, the net primary income deficit increased $1,663m (14%) in the September quarter 2010 to $13,166m.

In original terms, the primary income deficit increased $3,444m (31%) to $14,611m in the September quarter 2010. Primary income credits decreased $635m (6%) to $9,401m and primary income debits increased $2,809m (13%) to $24,012m.

NET PRIMARY INCOME
Graph: NET PRIMARY INCOME



Primary Income Credits

Primary income credits, in seasonally adjusted terms at current prices, decreased $391m (4%) to $9,560m. The main contributors to the decrease were:
  • a $198m (6%) decrease in portfolio investment assets, investment income on equity and investment fund shares
  • a $106m (4%) decrease in portfolio investment assets, interest.


Primary Income Debits

Primary income debits, in seasonally adjusted terms at current prices, increased $1,271m (6%) to $22,725m. The main contributors to the increase were:
  • a $1,379m (17%) increase in direct investment liabilities, income on equity and investment fund shares
  • a $181m (6%) increase in portfolio investment liabilities, income on equity and investment fund shares.

The above increases were partly offset by:
  • a $296m (4%) decrease in portfolio investment liabilities, interest.


SECONDARY INCOME

The trend estimate of the net secondary income deficit at current prices, increased $13m (3%) in the September quarter 2010 to $462m.

In seasonally adjusted terms the net secondary income deficit decreased $41m (9%) in the September quarter 2010 to $438m.


FINANCIAL ACCOUNT

The balance on financial account, in original terms, recorded a net inflow of $9.0b, with a net inflow of $18.0b of debt and a net outflow of $8.9b of equity.

The financial account surplus increased $5.7b from $3.4b in June quarter 2010 to $9.0b in September 2010, in line with the increase in the current account deficit which rose $5.8b from $3.5b last quarter to $9.3b this quarter.

Direct investment recorded a net outflow of $6.5b in September quarter 2010, an increase of $4.9b from the net outflow of $1.6b in June quarter 2010, where:
  • direct investment assets recorded an outflow of $12.5b, an increase of $5.0b on the outflow of $7.6b in June quarter 2010
  • direct investment liabilities recorded an inflow of $6.0b, an increase of $0.1b on the inflow of $5.9b in June quarter 2010.

Portfolio investment recorded a net inflow of $19.3b, an increase of $2.8b on the net inflow of $16.5b in June quarter 2010. This was driven by:
  • debt securities recording a net inflow of $20.1b
  • equity and investment fund shares recording a net outflow of $0.8b.

Portfolio liabilities debt securities, decreased marginally by $0.1b from $21.4b in the June quarter 2010 to $21.2b in the September quarter 2010.

Financial derivatives recorded a net inflow of $6.3b, a turnaround of $11.5b from the net outflow of $5.2b in the June quarter 2010. The main contributor was deposit-taking corporations, except the central bank, with a net inflow $5.9b.

Other investment recorded a net outflow of $7.8b, an increase of $1.8b from the net outflow of $6.0b in the June quarter 2010.

Reserve assets recorded a net outflow of $2.2b, an increase of $1.9b from the net outflow of $0.3b in the June quarter 2010.


INTERNATIONAL INVESTMENT POSITION


ANALYSIS

Australia's net international investment position at 30 September 2010 was a net foreign liability of $771.3b, up $4.2b (1%) on the 30 June 2010 position of $767.1b.

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

International Investment Position, Summary - September Quarter 2010

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

Position at beginning of period
767 093
92 788
674 305
Changes in position reflecting
Transactions
9 027
-8 943
17 971
Price changes
-21 362
-21 876
514
Exchange rate changes
17 917
45 492
-27 575
Other adjustments
-1 363
-2 140
777
Total changes
4 220
12 533
-8 313
Position at end of period
771 312
105 321
665 992




SUPPLEMENTARY INFORMATION


CONDITIONS

The conditions in the global economy continued to improve in the September 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: UK (0.8%), Germany (0.7%), USA (0.5%), Italy (0.2%) and total EU (0.4%).

Australia's international investment activities increased moderately during the quarter. Foreign asset and liability transactions were -$11.5b and $20.6b in the September quarter 2010, compared to -$16.8b and $20.2b respectively in the June quarter 2010.

The Australian share market, as measured by the MSCI global index, increased 6.4% in September quarter 2010, a turnaround from the 12.6% decrease in June quarter 2010. There were increases in all major markets: Hong Kong 20.7%, Europe ex. UK 18.9%, UK 12.8%, USA 9.2%, France 8.2%, Singapore 8.1%, Canada 7.8%, Germany 4.7% and Switzerland 2.6%. The world index increased 12.3%. This is reflected in the price changes of -$54.6b in foreign assets and $33.3b in foreign liabilities during September quarter 2010.

According to Reuters, the composite corporate benchmark yield decreased in the UK ( 6.2% to 5.5%), the USA ( 5.1% to 4.6%), Germany (3.5% to 3.2%) and Japan (1.3% to 1.1%). Long term government bond yields decreased in all major markets over September quarter 2010. The 10 year government bond yields decreased from 3.0% to 2.5% in the US, 3.4% to 3.0% in the UK, 2.6% to 2.3% in Germany, 1.1% to 0.9% in Japan and 5.3% to 5.0% in Australia. This is reflected in the market price changes increasing for both portfolio debt securities liabilities ($1.0b) and assets ($2.3b) in the September quarter 2010.

The AUD appreciated against most of the major currencies in the September quarter 2010. It increased against the USD (13.4%), the Hong Kong dollar (13.1%), the Chinese Renminbi (11.8%), the Canadian Dollar (11.3%), the UK pound sterling (7.6%), Japanese yen (6.8%), the New Zealand dollar (6.7%) and Euro (2.0%). The Trade Weighted Index (TWI) recorded an increase of 8.3%. The net impact of exchange rate changes was a decrease of $64.4b and $46.5b 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 1.5% and the chain Laspeyres price index for goods exports rose 1.4%. The export price index (EPI) rose 7.8% during the September quarter 2010.

The difference between the EPI and IPD is mainly driven by two components. In the metal ores and minerals component the unit value of a number of transactions decreased significantly in merchandise trade data, reflecting a change in the quality of some of the metal ores and minerals being exported. This is reflected in the IPD. The EPI prices items to constant quality, meaning that any element of price change attributable to a change in quality is removed. As a result, in the EPI the price of metal ores and minerals increased in September quarter 2010 in excess of the IPD.

The EPI and IPD for the coal 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 rose 0.5% and the chain Laspeyres price index for goods imports rose 0.8%. The import price index (IPI) rose 0.7% during the September quarter 2010.

Goods and Services, Price comparison - September Quarter 2010

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

Exports
Goods
1.3
1.5
7.8
1.4
Services
0.8
0.8
na
0.7
Imports
Goods
0.5
0.5
0.7
0.8
Services
0.1
0.2
na
0.3

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

Implicit Price Deflator and International Trade Price Indexes (a)
Graph: Implicit Price Deflator and International Trade Price Indexes (a)



Commodity Price Indexes

The RBA Commodity Price Index (average monthly index) for rural commodities increased 8.8% between the June and September quarters 2010 while the EPI for rural goods total increased 2.3%.

The RBA Commodity Price Index for non-rural commodities increased 4.1% while the EPI for non-rural goods total (excluding non-monetary gold) increased 9.4%.

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

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