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ANALYSIS AND COMMENTS


BALANCE OF PAYMENTS


CURRENT ACCOUNT

The trend estimate of the balance on current account for the March quarter 2007 was a deficit of $15,561m, an increase of $884m (6%) on the deficit recorded for the December quarter 2006 where:

• the goods and services deficit rose $446m (15%) to $3,393m
• the income deficit rose $445m (4%) to $12,059m
• the current transfers deficit fell $7m (6%) to $109m.

• the goods and services deficit fell $342m (9%) to $3,311m
• the income deficit rose $244m (2%) to $11,973m
• the current transfers deficit fell $22m (18%) to $98m.

In seasonally adjusted terms, the balance on goods and services was a deficit of $3,311m, a decrease of $342m (9%) on the December quarter 2006 deficit where:

• the net goods deficit rose $1m to $4,051m
• the net services surplus rose $343m (86%) to $741m.

The increase in goods debits was driven by:

• intermediate and other merchandise goods, up $381m (2%)
• consumption goods, up $218m (2%)
• other goods, up $10m (1%)
• partly offset by capital goods debits, down $63m (1%).

• non-rural goods, up $720m (2%)
• other goods, up $158m (5%)
• partly offset by rural goods credits, down $333m (5%).

In seasonally adjusted volume terms, the deficit on goods and services was $12,131m, an increase of $587m (5%) on the $11,544m deficit recorded in the December quarter 2006. The net deficit on goods rose $875m (8%) to $12,392m. Goods debits rose $1,288m (3%) and goods credits rose $413m (1%). The net services surplus of $261m was a turnaround of $287m on the deficit of $26m in December quarter 2006.

The increase of $587m in the deficit on goods and services in volume terms could be expected to contribute -0.2 percentage points to growth in the March quarter 2007 volume measures of GDP, assuming no significant revision to the GDP chain volume estimate for the December quarter 2006.

Goods and Services(a)

In seasonally adjusted current price terms, goods credits rose $544m (1%) to $42,687m.

Exports of rural goods, in seasonally adjusted terms at current prices, fell $333m (5%) to $6,169m, with volumes down 8% and prices up 3%. The decreases were in:

• cereal grains and cereal preparations, down $232m (21%), with volumes down 29% and prices up 11%
• other rural, down $172m (6%), with volumes down 10% and prices up 4%
• meat and meat preparations, down $39m (2%), on decreased prices.

Exports of non-rural goods, in seasonally adjusted terms at current prices, rose $720m (2%) to $33,431m, with volumes up 3% and prices down 1%. The largest increases were in:

• metals (excluding non-monetary gold), up $357m (10%), with volumes up 6% and prices up 4%
• other manufactures, up $295m (7%), with volumes up 9% and prices down 1%
• coal, coke and briquettes, up $248m (5%), with volumes up 6% and prices down 2%
• machinery, up $72m (4%), with volumes down 2% and prices up 5%.

• other mineral fuels, down $153m (4%), with volumes down 1% and prices down 3%
• metal ores and minerals, down $151m (2%), largely on decreased prices.

• non-monetary gold, up $103m (4%) with volumes up 1% and prices up 4%
• goods for processing, up $54m (76%), with volumes up 100% and prices down 11%.

General Merchandise Credits(a)

In seasonally adjusted current price terms, goods debits rose $545m (1%) to $46,738m.

Imports of consumption goods, in seasonally adjusted terms at current prices, rose $218m (2%) to $14,166m, largely on increased volumes. The largest increases were in:

• consumption goods n.e.s., up $138m (3%), with volumes up 4% and prices down 1%
• food and beverages, mainly for consumption, up $75m (4%), largely on increased volumes
• toys, books and leisure goods, up $65m (6%), with volumes up 7% and prices down 1%
• non-industrial transport equipment, up $58m (2%), largely on increased volumes.

Imports of capital goods, in seasonally adjusted terms at current prices, fell $63m (1%) to $10,536m, with volumes up 2% and prices down 2%. The largest decreases were in:

• civil aircraft, down $358m (79%), largely on decreased volumes
• telecommunications equipment, down $158m (11%), with volumes down 9% and prices down 3%.

• industrial transport equipment n.e.s., up $360m (23%), with volumes up 23% and prices down 1%
• ADP equipment, up $78m (4%), with volumes up 9% and prices down 4%
• machinery and industrial equipment, up $29m (1%), with volumes up 2% and prices down 1%.

• other parts for capital goods, up $339m (12%), largely on increased volumes
• processed industrial supplies n.e.s., up $210m (5%), with volumes up 7% and prices down 2%
• other merchandise goods, up $109m (32%), with volumes up 34% and prices down 2%
• iron and steel, up $52m (5%), with volumes up 1% and prices up 4%.

• fuels and lubricants, down $307m (6%), largely on decreased prices
• parts for ADP equipment, down $107m (23%), with volumes down 19% and prices down 5%.

General Merchandise Debits(a)

In seasonally adjusted current price terms, net services recorded a surplus of $741m, an increase of $343m (86%) on the December quarter 2006 surplus of $398m.

Services credits, in seasonally adjusted terms at current prices, rose $252m (2%) to $11,706m, largely on increased volumes. All components contributed to the rise in the seasonally adjusted series with:

• travel services, up $208m (3%), with volumes up 3% and prices up 1%
• transportation services, up $26m (1%), with volumes up 4% and prices down 3%, driven by passenger and other transportation services, up $30m (1%)
• other services, up $17m (1%), with volumes down 1% and prices up 1%.

• transportation services, down $80m (2%), due to:
  • passenger and other transportation services, down $43m (2%), with both volumes and prices down 1%
  • freight transportation services, down $37m (2%), on decreased volumes.
• travel services, down $27m (1%), on decreased volumes.

Seasonally adjusted, tourism related services credits rose $181m (2%) to $7,485m, while tourism related services debits fell $89m (2%) to $5,616m.

Implicit Price Deflator

In seasonally adjusted terms, the implicit price deflator (IPD) for total goods and services credits rose 0.1%. In original terms, it also rose by 0.1%. The chain Laspeyres price index for goods and services credits rose 0.2%, indicating that compositional effects had a downward influence on the movement in the IPD. In original terms, the IPD for goods credits rose 0.4% and the IPD for services credits rose 0.1%.

The total goods and services debits IPD fell 1.4% in seasonally adjusted terms. In original terms, it fell by 0.9% and the chain Laspeyres price index for goods and services debits fell 1.4%. In original terms, the IPD for goods debits fell 1.1% and the IPD for services debits fell 0.4%.

IMPLICIT PRICE DEFLATOR(a)

In original terms, the implicit price deflator for total goods debits fell 1.1% and the chain Laspeyres price index for goods imports fell 1.6%. The import price index (IPI) fell 1.7% during the March quarter 2007.

Terms of trade

Australia's seasonally adjusted terms of trade rose 1.4% to 119.7, with an increase of 0.1% in the IPD for goods and services credits and a 1.4% decrease in the goods and services debits IPD. The trend estimate of the terms of trade increased 1.5% to 119.7.

Income

The trend estimate of the net income deficit increased $445m (4%) to $12,059m.

In seasonally adjusted terms the net income deficit rose $244m (2%) to $11,973m. Income credits rose $946m (13%) to $8,215m and income debits rose $1,189m (6%) to $20,188m. Income credits rose mainly because of an increase in the income on direct investment equity abroad as new foreign mining projects were brought into production. Income debits rose due to profits accruing to direct investors in Australia. In original terms these profits increased slightly whereas normally March quarter is a seasonal low.

In original terms, the net income deficit rose $554m (5%) to $11,808m. Income credits rose $921m (13%) to $8,269m, due mainly to an increase in the income on direct investment equity abroad as new foreign mining projects were brought into production and income debits rose $1,475m (8%) to $20,077m. Income debits rose as a result of increased portfolio investment equity dividend payments by trading enterprises which is highly seasonal.

Net Income

CAPITAL AND FINANCIAL ACCOUNT

Capital Account

In original terms, the capital account surplus was $342m, down $475m (58%) on the revised December quarter 2006 surplus. Capital transfer credits rose $15m (2%) to $736m and capital transfer debits rose $33m (9%) to $394m.

Financial Account

In original terms, the balance on financial account recorded a net inflow of $15.2b, with a $12.1b inflow of debt and a $3.0b inflow of equity.

Direct investment in Australia recorded an inflow of $6.6b in the March quarter 2007, a decrease of $4.4b on the December quarter 2006 inflow of $11.1b. Australia's direct investment abroad recorded an outflow of $8.9b, an increase of $1.9b on the previous quarter's outflow of $7.0b. In net terms, direct investment recorded an outflow of $2.2b, a turnaround of $6.4b on last quarter's inflow of $4.1b.

Portfolio investment recorded a net inflow of $23.3b, an increase of $6.4b on the net inflow of $16.9b in the December quarter 2006. This was driven mainly by the continued issuance of long-term debt securities, by residents, on non-resident markets. The debt raisings were mainly used to retire short term debt positions. Additionally, the rate of take up by non-residents of portfolio equity in depository corporations for this quarter is the highest recorded for this series.

Other investment recorded a net outflow of $3.3b, a turnaround of $5.1b on the net inflow of $1.8b in the previous quarter.

Reserve assets recorded a net outflow of $1.6b, a decrease of $8.9b on the previous quarter's net outflow of $10.5b.

INTERNATIONAL INVESTMENT POSITION


INTERNATIONAL INVESTMENT

Australia's net international investment position at 31 March 2007 was a net foreign liability of $623.9b, up $18.0b (3%) on 31 December 2006. The increase consisted of:

• net transactions of $15.2b
• exchange rate changes of $2.8b
• other adjustments of $0.2b
• price changes of -$0.2b.

During the March quarter 2007 net equity liabilities rose $11.4b (14%) to close at $91.5b. The contributors to this increase were exchange rate changes of $7.3b, net transactions of $3.0b, price changes of $0.6b, and other changes of $0.5b.