5302.0 - Balance of Payments and International Investment Position, Australia, Dec 2014 Quality Declaration 
ARCHIVED ISSUE Released at 11:30 AM (CANBERRA TIME) 03/03/2015   
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ANALYSIS AND COMMENTS


BALANCE OF PAYMENTS


CURRENT ACCOUNT

In original current price terms, the December quarter 2014 current account deficit was $11,416m, a decrease of $3,192m (22%) on the September quarter 2014 deficit.

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 - December Quarter 2014

Change in:

Current prices
Current prices
Current prices
$m
$m
%

Seasonally Adjusted

Balance on current account
-9 588
2 542
21.0
Balance on goods and services
-2 430
1 469
37.7
Net goods
23
1 628
(a). .
Net services
-2 453
-159
-6.9
Net primary income
-6 621
1 067
13.9
Net secondary income
-537
5
0.9

Trend

Balance on current account
-11 279
478
4.1
Balance on goods and services
-3 911
-385
-10.9
Net goods
-1 597
-640
-66.9
Net services
-2 315
254
9.9
Net primary income
-6 832
857
11.1
Net secondary income
-536
6
1.1

. . not applicable
(a) See paragraph 5 of the Explanatory Notes.



VOLUMES AND PRICES

Goods and Services

In seasonally adjusted chain volume terms, the balance on goods and services was a surplus of $7,991m, a rise of $2,814m (54%) on the September quarter 2014 surplus of $5,177m.

The net surplus on goods rose $2,541m (40%) on the September quarter 2014 surplus of $6,279m. Goods credits rose $1,166m (2%) and goods debits fell $1,375m (2%). The net deficit on services fell $273m (25%) on the September quarter 2014 deficit of $1,102m.

The increase in the balance on goods and services surplus, in seasonally adjusted chain volume terms, is expected to contribute 0.7 percentage points to growth in the December quarter 2014 volume measure of GDP, assuming no significant revision to the GDP chain volume estimate for the September quarter 2014.

GOODS AND SERVICES, CHAIN VOLUME MEASURES (a)
Graph: GOODS AND SERVICES, CHAIN VOLUME MEASURES (a)



Terms of Trade and Implicit Price Deflator(footnote 1)

Australia's seasonally adjusted terms of trade on net goods and services for the December quarter 2014 fell 1.7% to 87.9, with an increase of 0.2% in the Implicit Price Deflator (IPD) for goods and services credits and an increase of 1.9% in the IPD for goods and services debits.

In trend terms, the terms of trade for net goods and services fell 1.9% to 88.1.

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 for the December quarter 2014 was a deficit of $1,597m, an increase of $640m (67%) on the September quarter 2014 deficit of $957m.

In seasonally adjusted terms at current prices, net goods was a surplus of $23m, a turnaround of $1,628m on the September quarter 2014 deficit of $1,605m.

GOODS, Price and volume analysis: Seasonally Adjusted - December Quarter 2014

CHANGE IN:

Current prices
Current prices
Chain volume measures(a)
Implicit price deflators(a)(b)
$m
%
%
%

Exports
1 193
1.9
1.7
0.2
Rural goods
207
2.1
-2.1
4.2
Non-rural goods
1 266
2.5
3.1
-0.6
Net exports of goods under merchanting
27
26.5
31.1
-3.6
Non-monetary gold
-307
-8.2
-9.3
1.2
Imports
-434
-0.7
-2.2
1.6
Consumption goods
247
1.2
-2.5
3.8
Capital goods
329
2.1
-2.2
4.4
Intermediate and other merchandise goods
-1 024
-3.5
-2.0
-1.5
Non-monetary gold
14
1.6
0.5
1.1

(a) Reference year 2012-13.
(b) Movements in indexes are based on data to four decimal places.



Services

SERVICES, Price and volume analysis: Seasonally Adjusted - December Quarter 2014

CHANGE IN:

Current prices
Current prices
Chain volume measures(a)
Implicit price deflators(a)(b)
$m
%
%
%

Exports
-241
-1.6
-2.2
0.7
Manufacturing services on physical inputs owned by others
-1
-50.0
-50.2
0.4
Maintenance and repair services n.i.e.
-5
-31.3
-31.5
0.4
Transport
-16
-1.0
-1.8
0.9
Travel
-5
-0.1
-0.8
0.8
Other services
-214
-4.6
-5.0
0.4
Imports
-83
-0.5
-3.8
3.5
Manufacturing services on physical inputs owned by others
-
-
-
-
Maintenance and repair services n.i.e.
-23
-23.7
-26.8
4.2
Transport
34
0.8
-1.2
2.0
Travel
-112
-1.5
-5.1
3.8
Other services
18
0.3
-3.8
4.2

- nil or rounded to zero (including null cells)
(a) Reference year 2012-13.
(b) Movements in indexes are based on data to four decimal places.



GOODS CREDITS

The trend estimate of goods credits at current prices fell $1,311m (2%) to $64,087m in the December quarter 2014.

In seasonally adjusted terms at current prices, goods credits rose $1,193m (2%) to $65,648m, with volumes up 2%.


Rural Goods

Exports of rural goods, in seasonally adjusted terms at current prices, rose $207m (2%) to $10,037m, with volumes down 2% and prices up 4%. The main component contributing to the rise was meat and meat preparations, up $316m (11%), with volumes down 3% and prices up 15%.

Partly offsetting this rise was other rural, down $176m (4%), with volumes down 4% and prices down 1%.


Non-rural Goods

Exports of non-rural goods, in seasonally adjusted terms at current prices, rose $1,266m (2%) to $52,041m, with volumes up 3% and prices down 1%. The main components contributing to the rise were:
  • metals (excl. non-monetary gold), up $516m (19%), with volumes up 16% and prices up 3%
  • other mineral fuels, up $323m (4%), with volumes up 8% and prices down 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 $27m (26%), with volumes up 31% and prices down 4%.


Non-monetary Gold

Non-monetary gold, in original and seasonally adjusted terms at current prices, fell $307m (8%), with volumes down 9% and prices up 1%.


GOODS DEBITS

The trend estimate of goods debits at current prices fell $670m (1%) to $65,684m in the December quarter 2014.

In seasonally adjusted terms at current prices, goods debits fell $434m (1%) to $65,626m, with volumes down 2% and prices up 2%.


Consumption Goods

Imports of consumption goods, in seasonally adjusted terms at current prices, rose $247m (1%) to $20,771m, with volumes down 3% and prices up 4%. The main components contributing to the rise were:
  • non-industrial transport equipment, up $152m (3%), with volumes up 1% and prices up 2%
  • food and beverages, mainly for consumption, up $133m (4%), with volumes up 2% and prices up 2%.


Capital Goods

Imports of capital goods, in seasonally adjusted terms at current prices, rose $329m (2%) to $16,049m, with volumes down 2% and prices up 4%. The main components contributing to the rise were:
  • telecommunications equipment, up $373m (17%), with volumes up 10% and prices up 7%
  • capital goods n.e.s., up $362m (17%), with volumes up 12% and prices up 4%
  • ADP equipment, up $320m (16%), with volumes up 7% and prices up 8%.

Partly offsetting these rises was civil aircraft and confidentialised items, down $754m (34%), with volumes down 39% and prices up 9%.


Intermediate and Other Merchandise Goods

Imports of intermediate and other merchandise goods, in seasonally adjusted terms at current prices, fell $1,024m (4%) to $27,940m, with volumes down 2% and prices down 2%. The main component contributing to the fall was fuels and lubricants, down $1,345m (13%), with volumes down 4% and prices down 10%.

Partly offsetting this fall were:
  • processed industrial supplies n.e.s., up $194m (3%), with prices up 3%
  • other parts for capital goods, up $158m (4%), with volumes up 1% and prices up 4%.


Non-monetary Gold

Imports of non-monetary gold, in original and seasonally adjusted terms at current prices, rose $14m (2%) to $866m, with volumes up 1% and prices up 1%.


SERVICES

The trend estimate of net services at current prices was a deficit of $2,315m, a fall of $254m (10%) on the September quarter 2014 deficit of $2,569m.

In seasonally adjusted terms at current prices, net services was a deficit of $2,453m, a rise of $159m (7%) on the September quarter 2014 deficit of $2,294m.


Services Credits

Services credits, in seasonally adjusted terms at current prices, fell $241m (2%) to $14,946m, with volumes down 2% and prices up 1%. The main component contributing to the fall was other services, down $214m (5%), with volumes down 5%.

In seasonally adjusted terms, tourism related service credits fell $23m to $9,485m.


Services Debits

Services debits, in seasonally adjusted terms at current prices, fell $83m to $17,399m, with volumes down 4% and prices up 3%. The main component contributing to the fall was travel, down $112m (2%), with volumes down 5% and prices up 4%.

Partly offsetting this fall was transport, up $34m (1%), with volumes down 1% and prices up 2%.

In seasonally adjusted terms, tourism related service debits fell $146m (2%) to $8,789m.


PRIMARY INCOME

The trend estimate of the net primary income deficit at current prices, fell $857m (11%) to $6,832m in the December quarter 2014.

The seasonally adjusted estimate of the net primary income deficit at current prices, fell $1,067m (14%) to $6,621m in the December quarter 2014.

NET PRIMARY INCOME
Graph: NET PRIMARY INCOME



Primary Income Credits

Primary income credits, in seasonally adjusted terms at current prices, rose $167m (1%) to $13,696m. The main component contributing to the rise was other investment assets, up $114m (11%).


Primary Income Debits

Primary income debits, in seasonally adjusted terms at current prices, fell $900m (4%) to $20,317m. The main component contributing to the fall was direct investment liabilities, income on equity and investment fund shares, down $1,490m (21%). The main driver to this fall was the mining industry, following the recent fall in commodity prices.


SECONDARY INCOME

The trend estimate of the net secondary income deficit at current prices, fell $6m (1%) to $536m in the December quarter 2014.

In seasonally adjusted terms, the net secondary income deficit at current prices, fell $5m (1%) to $537m in the December quarter 2014.


FINANCIAL ACCOUNT

The balance on financial account, in original terms, recorded a net inflow of $11.7b, which was driven by a net inflow of debt of $13.2b partly offset by a net outflow of equity of $1.5b.

The financial account surplus decreased $3.2b to $11.7b in the December quarter 2014, from $14.8b in the September quarter 2014.

Direct investment recorded a net inflow of $12.2b in the December quarter 2014, a decrease of $8.5b from the net inflow of $20.7b in the September quarter 2014, where:
  • direct investment liabilities recorded an inflow of $16.0b, a decrease of $5.6b on the inflow of $21.5b in the September quarter 2014
  • direct investment assets recorded an outflow of $3.8b, an increase of $2.9b on the outflow of $0.9b in the September quarter 2014.

Portfolio investment recorded a net inflow of $14.7b, a turnaround of $17.3b on the net outflow of $2.6b in the September quarter 2014, where:
  • debt securities recorded a net inflow of $27.1b, a turnaround of $35.4b on the outflow of $8.3b in the September quarter 2014
  • equity and investment fund shares recorded a net outflow of $12.4b, a turnaround of $18.1b on the inflow of $5.8b in the September quarter 2014.

Financial derivatives recorded a net outflow of $2.4b, a decrease of $4.3b from the net outflow of $6.7b in the September quarter 2014.

Other investment recorded a net outflow of $10.1b, an increase of $9.9b from the net outflow of $0.3b in the September quarter 2014.

Reserve assets recorded an outflow of $2.7b, a turnaround of $6.4b from the inflow of $3.7b in the September quarter 2014.


INTERNATIONAL INVESTMENT POSITION (IIP)


ANALYSIS

Australia's net IIP liability position was $866.1b at 31 December 2014, a decrease of $7.8b (1%) on the 30 September 2014 position of $873.9b. Australia's net foreign debt liability increased $38.0b (4%) to a net liability position of $924.8b. Australia's net foreign equity increased $45.8b (356%) to a net asset position of $58.7b at 31 December 2014.

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

INTERNATIONAL INVESTMENT POSITION, Summary - December Quarter 2014

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

Position at beginning of period
873 931
-12 866
886 797
Changes in position reflecting
Transactions
11 698
-1 542
13 240
Price changes
-2 042
-6 263
4 221
Exchange rate changes
-15 006
-32 562
17 555
Other adjustments
-2 431
-5 451
3 020
Total changes
-7 782
-45 818
38 036
Position at end of period
866 149
-58 684
924 834




SUPPLEMENTARY INFORMATION


CONDITIONS

The conditions in the global economy showed modest growth for most countries in the December quarter 2014. According to the Organisation for Economic Cooperation and Development (OECD),(footnote 2) preliminary real GDP estimates in seasonally adjusted terms showed quarterly growth for China (1.5%), USA (0.65%) and UK (0.50%). Quarterly growth rates fell for Greece (0.17%) and Italy (0.02%).

Australia's international investment activities during the quarter were as follows:
  • foreign asset transactions were -$14.1b in the December quarter 2014 compared to $1.3b in the September quarter 2014
  • foreign liability transactions were $25.8b in the December quarter 2014 compared to $13.5b in the September quarter 2014.

The Australian share market, as measured by the MSCI global index,(footnote 3) increased 2.1% in the December quarter 2014, following a decrease of 2.0% in the September quarter 2014. There were increases in all major markets: Japan 6.5%, USA 4.3%, Germany 4.0%, Singapore 2.8%, Hong Kong 2.6%, New Zealand 1.8% and Switzerland 1.7%. Decreases were recorded in Europe (excl. UK) 4.5%, France 2.1%, Canada 1.9% and UK 1.1%. A market price change of -$14.7b was recorded for foreign equity assets and $8.5b in foreign equity liabilities in the December quarter 2014.

According to Bloomberg(footnote 4) , the composite corporate benchmark yield decreased in Australia from 4.01% to 3.52%, in UK from 3.39% to 2.99%, Germany from 1.32% to 1.17% and Japan from 0.37% to 0.27% but increased in USA from 3.18% to 3.23%. The long term 10 year government bond yields decreased in USA from 2.52% to 2.20%, UK from 2.43% to 1.76%, Germany 0.90% to 0.54% and Japan from 0.53% to 0.33%. In Australia, the rate decreased from 3.55% to 2.96%. Market price changes were recorded for both portfolio debt securities liabilities of $7.6b and assets of -$0.4b in the December quarter 2014.

The Australian dollar depreciated against a number of the major currencies in the December quarter 2014. It decreased 6.7% against the New Zealand dollar, 6.5% against the Philippino peso, 6.3% against the US dollar, 5.5% against the Chinese renminbi, 4.2% against the Indonesian rupiah, 3.7% against the Indian rupee, 3.0% against the South Korean won, 2.8% against the Singapore dollar, 2.5% against the Canadian dollar, 2.2% against the European euro and 2.1% against the UK pound sterling. The Australian dollar appreciated 8.3% against the Norwegian krone, 2.4% against the Japanese yen and 0.1% against the Malaysian ringgit. The Trade Weighted Index (TWI) (footnote 4),(footnote 5) recorded a decrease of 3.5%. This is reflected in exchange rate changes for foreign assets of -$45.3b and foreign liabilities of $30.3b.


RELATIONSHIP BETWEEN IPD, EPI AND IPI(footnote 6)

In original terms, the IPD for total goods credits fell 0.5% and the chain Laspeyres price index for goods exports rose 0.05%. The Export Price Index (EPI)(footnote 7) remained steady during the December quarter 2014.

In original terms, the IPD for total goods debits rose 1.4% and the chain Laspeyres price index for goods imports rose 1.17%. The Import Price Index (IPI)8 rose 0.9% during the December quarter 2014.

Differences between the IPD and International Trade Price Indexes can arise due to a number of methodological factors including differences in pricing points, timing, coverage and weights.

GOODS AND SERVICES, Price comparison - December Quarter 2014

Changes in:

Seasonally adjusted

Original

Implicit price deflators(a)
Implicit price deflators(a)
International Trade price indexes(b)
Chain Laspeyres price indexes(a)
%
%
%
%

Exports
Goods
0.2
-0.5
-
-
Services
0.7
0.7
na
0.7
Imports
Goods
1.6
1.4
0.9
1.2
Services
3.5
3.4
na
3.5

- nil or rounded to zero (including null cells)
na not available
(a) Reference year 2012-13 = 100.
(b) 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 8) (average monthly index) for rural commodities increased 6.1% between the September and December quarter 2014 while the EPI for rural goods increased 3.3%.

The RBA Commodity Price Index for non-rural commodities decreased 1.9% while the EPI for non-rural goods total (excluding non-monetary gold) decreased 0.6%.

Differences between the RBA Commodity Price Index and ABS price measures are largely a consequence of methodological differences used in the construction of the respective indexes, including coverage of included commodities and timing of source data.


CALENDAR YEAR 2014 SITUATION


CURRENT ACCOUNT

In original terms, the balance on current account for 2014 was a deficit of $44.7b, a decrease of $7.0b (14%) on the deficit of $51.7b recorded for 2013. The balance on goods and services deficit was $9.8b, a decrease of $0.5b (5%) on the deficit of $10.3b recorded in 2013. Goods credits increased $4.0b (2%) and goods debits increased $7.2b (3%).

The 2014 services deficit of $11.2b was a decrease of $3.7b (25%) on the deficit of $14.9b in 2013.

The 2014 net primary income deficit decreased $6.3b (16%), with an increase in primary income credits of $4.8b (10%) and a decrease in primary income debits of $1.5b (2%).

The 2014 secondary income deficit decreased $0.2b (8%), with an increase in secondary income credits of $0.4b (6%) and an increase in secondary income debits of $0.2b (2%).


FINANCIAL ACCOUNT

The balance on financial account recorded a net inflow of $44.9b, with a net inflow on debt of $21.9b and a net inflow on equity of $23.0b. This result was down $7.4b on the net inflow of $52.3b recorded for the previous year as a result of:
  • a decrease of $1.4b on the net inflow on direct investment
  • a decrease of $27.2b on the net inflow on portfolio investment
  • a decrease of $1.9b on the net outflow on financial derivatives
  • a decrease of $17.8b to the net outflow on other investment
  • a decrease of $1.6b on the outflow on reserve assets.


INTERNATIONAL INVESTMENT POSITION (IIP)

Australia's net IIP as at 31 December 2014 was a net foreign liability of $866.1b. This was up $28.3b (3%) on the position a year earlier as a result of:
  • net transactions of $44.9b
  • price changes of $7.8b
  • other changes of -$12.8b
  • exchange rate changes of -$11.6b.

During 2014, Australia's net foreign equity increased further from a net asset position of -$10.5b to -$58.7b at 31 December 2014. This was a -$48.2b (458%) change on the previous calendar year due to exchange rate changes of -$35.7b, other changes of -$20.1b and price changes of -$15.3b. These were partly offset by net transactions of $23.0b.

Australia's net foreign debt liability rose to $924.8b at 31 December 2014, up $76.4b (9%) on the previous calendar year, with exchange rate changes of $24.0b, price changes of $23.2b, net transactions of $21.9b and other changes of $7.3b.

At 31 December 2014, the ratio of Australia's net IIP to GDP using the latest available GDP figure (for the year ended 30 September 2014 using current prices) was 54.3%. This compares with 54.0% one year ago and 55.9% one decade ago.

Footnotes:1 In this commentary movements in indexes are based on data to four decimal places. <back
2 OECD Statistics Quarterly National Account, Organisation for Economic Cooperation and Development – Economic Department, viewed 16 February 2015 . <back
3 MSCI Global Market Indexes 2015, Morgan Stanley Capital International, viewed 12 January 2015, . <back
4 Bloomberg, Bloomberg Professional Service, viewed 13 January 2015. <back
5 Exchange Rates – Daily 2015 to Current, Reserve Bank of Australia – Statistical Tables, viewed 8 January 2015, <back
6 In this commentary movements in indexes are based on data to four decimal places. <back
7 Source: International Trade Price Indexes, Australia (cat. no. 6457.0). <back
8 For RBA Commodity Price Index methodology, see paragraph 23 of the Explanatory Notes. <back