SYDNEY (Reuters) – Strong domestic demand pulled in imports and miners paid more dividends overseas, pushing Australia‘s current account into deficit for the first time in three years last quarter. However, the impact on economic growth was less severe than initially expected.
According to figures released Tuesday by the Australian Bureau of Statistics, the current account deficit widened to A$2.3 billion ($1.54 billion). It was much lower than the A$14.7 billion surplus recorded in the prior quarter and the A$6.2 billion surplus that had been anticipated.
Grace Kim, acting head of international statistics at the ABS, said that the deficit was due to “a decreasing but solid trade surplus,” which was countered by a record high-income deficit in the September quarter.
Due to massive dividend payments to overseas investors, the income gap widened to A$33.2 billion in the quarter.
Gross domestic product (GDP) growth in the third quarter was only dragged down by 0.2 percentage points due to net exports when experts had predicted a loss of 0.6 percentage points.
However, new information released on Tuesday indicated that government expenditure reduced quarterly growth by 0.2 percentage points.
The economy is expected to experience a one-time boom as the doors to a business open again following the end of the pandemic lockdowns, which will boost annual growth to an impressive 6.3%.
On Tuesday, the Reserve Bank of Australia (RBA) is likely to raise interest rates by 25 basis points, the eighth increase in as many months, to a decade-high of 3.10%, in response to the resiliency of demand.
A surprising slowdown in inflation in October has caused markets to reduce the predicted peak for interest rates from over 4.0% to between 3.35% and 3.60%.
Since the dramatic tightening previously provided has not fully fed through to mortgage repayments, there is anticipation that the RBA will choose to stop this week.
The repayments on many two- and three-year fixed mortgages taken out in 2020 and 2021, when rates were at historic lows, will spike dramatically in 2022.
Since the RBA’s next meeting won’t be until February and employment and pay statistics are still looking good, ANZ’s head of Australian economics, David Plank, predicts a rate rise on Tuesday.
However,” he continued, “we are cognizant of the possibility of material modifications in the post-meeting statement.”
“Most notably, incorporating specific language about a possible delay inside the declaration would be a dovish development,” the authors write.
