Australia's just logged its smallest current account deficit since 2001

14 Jul 2001: Australian prime minister John Howard hugs George Gregan #9 of the Wallabies after the Wallabies victory over the Lions during the third Test Match between the Australian Wallabies and the British and Irish Lions played at Stadium Australia, Sydney, Australia. Photo: Nick Laham/ALLSPORT

Australia’s current account deficit continued to narrow in the December quarter, leaving it at the lowest level in nearly two decades.

According to the ABS, it plummeted by 62% in seasonally adjusted terms to $3.853 billion, thanks largely to booming prices for Australia’s commodity exports.

It was the smallest current account deficit since the September quarter 2001, thanks to a spectacular turnaround in Australia’s good and services trade performance.

And, at just 0.9% of GDP, it was the smallest since 1979.

A goods and services surplus of $4.667 billion was recorded. Not only was this a sharp reversal from the $3.538 billion deficit in the September quarter, it’s also the largest surplus on record.

Exports of goods and services rose by 12%, or $9.668 billion, while imports of goods and services rose by a smaller 2%, or $1.462 billion.

Australia’s terms of trade — a ratio of the value of exports divided by imports — jumped by 9.1% during the quarter, the largest gain in over six years. That followed a 5.1% jump in the September quarter, and may extend even further should the recent strength in commodity prices be maintained in March.

In seasonally adjusted volume terms, the surplus on goods and services rose by $700 million, or 49%, to $2.124 billion during the quarter.

That’s important as it is expected to contribute 0.2 percentage points to growth in tomorrow Australian Q4 GDP report.

That was also the contribution expected by economists.

While the goods and services balance swung back to surplus, the nation’s primary income deficit increased by 30% ($1,843 billion) to $8.081 billion.

The primary income account shows income flows between residents and non-residents.

The ABS said Australia’s net international investment position was a liability of $1.0216 trillion as a the end of 2016, down 2% on the prior quarter.

Australia’s net foreign debt decreased by $25.6 billion, or 2% to a show a net liability $1.0231 trillion last quarter.

In the wake of the release, economists at UBS said a current account surplus is likely to be recorded in the March quarter given surging commodity prices which will support the Australian dollar and Australia’s AAA credit rating.

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