External Stability

International Comparisons

In the 1980s, the United States was considered a country that traditionally ran a current account surplus. However, during the 1990s this position changed - the US economy began to rely on imports and debt to a far greater degree, and as a result their current account shifted into defict. Slower growth in the European area and Japan, combined with the appreciation of the USD also contributed to a structural shift towards a deficit balance on current account.

At the same time, Japan has been able to maintain a significant surplus balance on current account. As a net lender, Japan has been able to maintain a strong surplus in the net income account.

For several years, the Australian economy has been closely compared to that of Canada. The two countries are of a similar size, and have a similar population. The two countries also have a close relationship with the USA, and a large land mass which allows for high levels of primary production. As such, it is interesting that during the last 10 years while Australia has maintained a cyclical nature to its balance on current account, Canada has moved from a CAD/GDP ratio of -4.1% in 1991 to a current account surplus ratio of 3.4% by 2001.

This is a very significant turn-around, and is due primarily to the increase in trade that was made possible through the North American Free Trade Agreement (NAFTA). It will be interesting to note the change in Australia’s current account balance as the free trade agreement with the United States begins to have an impact on our economy. Early indicators suggest that the AUSFTA has resulted in an increase in imports from the USA, with no significant change in our exports to that country yet. (However, it is important to note that this period has also seen a very significant increase in the value of the Australian dollar, which has acted to discourage exports to the USA.)

Recording the deficit as a percentage is seen by some as an effective way of hiding a growing problem. In 2005, the Japanese economy had a current account surplus of over $165 billion (in US dollars). The Australian economy, in comparative figures, had a deficit of around $42 billion. At the same time, the US economy recorded a current account deficit of almost $830 billion. This is almost ten times as big as the second largest deficit that was recorded during that year. (For the record, Spain experienced the second largest CAD, with a deficit balance of just over $US83 billion.)

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