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Drought is responsible for the trade deficit blow-out to $1.14 billion.



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PM

Friday 10 January 2003

Drought is responsible for the trade deficit blow-out to $1.14 billion.

 

TANYA NOLAN: Little has been left unaffected by the drought, and it's now being blamed for the blow-out in Australia's trade deficit, now at its widest level in more than two years. The trade gap grew to $1.14 billion in November, marking the nation's twelfth consecutive monthly deficit. As crops failed and livestock starved, rural exports slumped, providing a real glimpse of how the drought is impacting on the economy. 

 

In Melbourne, Kate Tozer reports. 

 

KATE TOZER: The drought gripping much of Australia has well and truly hit the export front. In November, rural exports fell by 7 per cent, or $162 million to $2.25 billion. It was due mainly to falls in the export of cotton, beef and veal, and the dramatic drop in wheat volumes, down around 20 per cent over the month.  

 

The Acting Trade Minister, John Anderson predicts the trade gap will remain around $1 billion while the full impact of the drought filters through. 

 

JOHN ANDERSON: It's certainly being heightened as the months go by, and will be of course, very much reflected in the lack of an export wheat crop over the December-January-February period.  

 

But of course, if it's having an overall impact on the economy, what needs to be remembered is that it's having a very savage impact on that relatively smaller number of people who live in rural and regional areas and are dependent upon farm production.  

 

That's where it's sharpest, and so it's a cold, I suppose you'd say in medical terms, for the economy, a bit of a sniffle, not very comfortable, but it's pneumonia for a lot of farmers, a very serious downturn indeed in their income.  

 

KATE TOZER: The data released by the Australian Bureau of Statistics is marginally better than what many economists were predicting. But it's by no means a good news story. There was positive news among some of the other export sectors, the biggest surprise in car exports, which surged 22 per cent, reflecting an increased demand from the US. Domestic expenditure has generally remained strong. Imports for the month rose 1 per cent, with stronger consumer imports and resilient capital goods imports. 

 

JOHN ANDERSON: It certainly reflects a very strong economy with people feeling confident and having money in their pocket and being prepared to spend it. And we have seen a significant improvement in our balance of trade recently. This is an unwelcome interruption as I say, though, it's a problem for the economy. 

 

KATE TOZER: Labor's spokesman on trade, Craig Emerson, has attacked the Government for the widening trade gap. He says the country is too reliant on primary commodity exports, leaving the economy vulnerable.  

 

CRAIG EMERSON: The trade deficit now, the latest month, is the twelfth in a row, and it's only really the beginning because [inaudible] the beginning of the drought is starting to show up, so the worst is yet to come. And because the Government has failed to diversify our export base, we're especially vulnerable. 

 

KATE TOZER: The Government remains confident that the economic and fiscal outlook forecast of export growth of 2 per cent this year remains on track. However, Brian Redican, the Senior Economist with Macquarie Bank believes that target is perhaps a little optimistic. 

 

BRIAN REDICAN: Most of the risks are firmly skewed to the downside; that's reflecting the strength of the Aussie dollar, the probably larger than expected impact of the drought on rural exports, as well as a fairly sluggish world economy. So all those factors are conspiring to suggest that the risks are firmly on the downside of that number. 

 

KATE TOZER: The International Credit Ratings Agency, Moody's Investor Service, is giving the Australian economy a continued vote of confidence, but it has noted that the nation is exposed to a higher level of foreign liabilities than most other AAA-rated countries. 

 

TANYA NOLAN: Kate Tozer reporting.