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Australia Current Account Deficit Essay

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Introduction:
Australia’s economy has struggled with a Current Account Deficit for the decades. This has been perpetuated by the increasing amount of imports our country has accepted from countries like China, and the amount of goods and services we have exported not being able to compete. The deficit has increased dramatically in recent years due to commodity prices dropping, increasing overseas competition and the overvalued dollar.

A state incurs a Current Account Deficit (CAD) when its national account spends more money internationally than it is able to bring into the country. The current account consists of all the transactions a state makes internationally. The most common and generally largest contributor to a CAD is when a nation’s imports exceeds its exports. Several other types of transactions also make up for smaller parts of a CAD. Financial activities such as investments, international wage rates and expenses such as foreign aid also affect a …show more content…

There are many factors that have shaped Australia’s Current Account Deficit in recent years, but there are some that have stood out significantly.
Within the last year Australia’s CAD has grown to it’s second largest deficit recorded ($21 billion) shown in Graph A. This is primarily due to commodity prices dropping significantly (Financial Review, 2015). With such a large portion of Australia’s export market accounted for by minerals, the decrease in prices has affected profit, causing the whole sector to suffer. In the 2015 December quarter alone, exports dropped 4.9 percent due primarily to the commodities market becoming weaker. Profit in the Australia’s agricultural exports has also stalled, leaving Australia in a precarious position with two of its largest industries slowing. The combined effect on both commodities and agriculture has resulted in the financial lapse in Australia’s CAD that we have witnessed in the past

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