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Another balance of payments result emphasising our vulnerability



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m

John Hewson Leader of the Opposition M e d i a R e l e a s e

153/91 3 June 1991

ANOTHER BALANCE OF PAYMENTS RESULT EMPHASISING OUR VULNERABILITY

Amid the hubbub of the ALP leadership battle, the April balance of payments outcome was always going to get inadequate attention.

The situation is further compounded by the large month to month swings which have occurred in the last two months which make it difficult to discern trends.

Those that see further downside in private demand can see scope for a return to a lower daily flow of imports after this number which has been influenced by some one off factors.

But the concern remains exports which appear to be losing

momentum. Gold exports appear to be slowing after a tax induced spurt and oil exports seem to be undergoing a more substantial fall. Some exports, such as wheat, may also experience supply constraints. Others, particularly some manufactured exports, seem to be responding counter cyclically with producers pushing out more exports on a stress sale basis to keep plants going in the

face of the domestic downturn.

Meanwhile, the net income deficit has been suppressed by falling retained profits. But debt keeps rising and a lower exchange rate will flow through in valuation effects.

The fact is that after taking account of the swings and

roundabouts the rate of improvement of the current account has slowed to a walk and may indeed be reaching a plateau here

despite the fact that we are experiencing a massive recession.

That would be bad news as it would mean that we would go into the second half of 1991 and 1992 very exposed to any further downturn abroad.

As the attached chart 1 drawn from EPAC shows, if the nation continues to run a current account deficit approaching 5 per cent of GDP (and the former Treasurer has conceded a forecast current account deficit of 4 3/4 per cent of GDP in 1991/92 in his

presentation to the Premiers' Conference) the nation is unlikely to stabilise our income servicing burden this decade.

Australia is very vulnerable and the problem deepens daily despite the recession.

COMMONWEALTH :

PARLIAMENTARY LIBRARY 1 M iC A H I

2 .

Perhaps the OECD is right and>the industrialised countries will enjoy a strong recovery starting in the next half year. But the fact is that money supplies around the G7 are still falling and in some cases, eg Japan and the UK, quite dramatically.

This may signal further asset price falls ahead and associated secondary problems for the international banking system.

It is still not a good time to be in debt and the fact that we

do not seem to be making more rapid progress is particularly worrying given these circumstances.

In that context, the pundits may pause to reflect on the

achievement claimed by Mr Keating in bringing the balance of goods and services into surplus. In fact he has only achieved that outcome for one month - the month of March. In the March Quarter as a whole the g&s balance remained in deficit - see chart 2 attached - and remained heavily in deficit in April.

So one battle won by the pundits favourite gladiator has not won the war. There is a long way to go before debt is stabilised and the income deficit brought within a range that would be more prudent in a fragile world economy.

FOR FURTHER INFORMATION CONTACT 06 277 4022

Stabilising External Debt per cent of gdp

projections (ϋ)

(II) at 5 per cant rises through 2000

τρΟ · 0 0 0 0 0 o

t 2.7 per cent stabilised by 1993

I I I I I I I I I I I I I I I I I I I I I I I I

-5 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000

Os Share Prop Income - B ~ Current Ac

source EPAC

COMPONENTS OF THE CURRENT ACCOUNT A LONG WAY TO GO YET TO TRADE OUT OF THE DEBT TRAP

$BN (Thousands) 1 --------------------

■J ll I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I

341234123412341234123412341234123412341234123412341234123412341234 trd 76 I 77 I 78 I 79 I 80 I 81 I 82 I 83 I 8 4 I 85 I 86 I 87 I 8 8 I 8 9 I 90 I 91 I

net exports of g&s net other income+tfs

SEASONALLY ADJUSTED