Mr CAUSLEY —My question is directed to the Treasurer. Can the Treasurer inform the House of the result of the trade figures for the month of February released earlier today? What is the government's response to these figures?

Mr COSTELLO (Treasurer) —I thank the honourable member for Page for his question. I think the honourable member will be pleased to know that the outcome on international trade in goods and services for the month of February, which showed a deficit of $321 million, was an improvement by 42 per cent on the outcome for the previous month. Most people will think that is good news—that there was an improvement in the month of February of 42 per cent on January.

The result was much better than market expectations, which were expecting a trade deficit of about $550 million. Merchandise exports rose about 2.9 per cent. Non-rural and other exports increased, while services exports rose by 0.2 per cent. Merchandise imports rose 0.3 per cent after falling sharply in the previous month and, while capital goods and intermediate goods imports rose 1.6 and two per cent respectively, imports of consumption goods actually fell by 3.5 per cent. A good picture in relation to the international trade for the month of February: credits, that is, exports of goods and services, rising by about two per cent and debits, that is, imports of goods and services, staying constant. I think all Australians will welcome that outcome.

Having said that, this is of course one month's figures. The government would expect, in the forthcoming year 1998-99, the current account to widen somewhat as a consequence of the external situation, particularly in relation to Asia.

I endorse the comments that were recently made by the Governor of the Reserve Bank, who observed:

On previous occasions the cyclical widening of the current account deficit usually reflected a mixture of external influences, such as a fall in the terms of trade, plus some significant internal imbalances or policy deficiencies.

He noted on this occasion that, whilst there would be a cyclical turn in relation to the current account expected, we have none of these imbalances. It would essentially be the result of an external contraction of demand, with domestic demand running faster than trend but certainly on a sustainable basis.

Over the last two decades Australia has had three current account blow-outs: in 1985-86 at 6.7 per cent, in 1989-99 at 6.8 per cent, and in 1994-95 at 6.7 per cent. We would not expect a current account blow-out of anything like that over the course of 1998-99. But, importantly, the change in the government's economic position has put us in a much stronger position in relation to those cyclical turnarounds. Whilst, during those blow-outs, Australia was suffering from high inflation, we now have one of the best inflation rates in the developed world. Whilst, in respect of at least two of those blow-outs Australia was in serious deficit, we now have the opportunity to get our budget into surplus.

We go into this cyclical turnaround and external challenge in a strengthened position because this government took the key decisions to strengthen the Australian economy. We had the foresight to strengthen the Australian economy at a time when developments in Asia may not have been expected, but when it was prudent to do so—to set Australia up for opportunities which we otherwise would have missed. They are the benefits of good, sound economic policy.