Australia Financial Flow Essay

financial flows between Australia and the rest of the world during a given period of time. It is presented in two accounts: the current account and the capital and financial account.

The current account and the capital and financial account are commonly linked. Both accounts a related in terms investment flows and income flows, and ultimately allow the Balance of payments to sum to zero. The current account records are non-reversible transactions, including trade in goods and services and net primary (NPY) and secondary (NSY) income flows. The Current Account is known to maintain a cyclical as the deficit of around 2-7% of GDP, whilst maintaining an underlying structural average. Any impacts upon Australia’s international competitiveness,

In Australia, if export prices are increasing relative to import prices, then Australia's terms of trade will improve, and vice versa. A higher term of trade means that exports receive higher price for the original output, which in turn increases export revenue and improves BOGS and reduces the CAD, and vice versa when for a lowered term of trade. From the beginning of 21st century, the commodity price boom has been the strongest influence on the CAD, with higher export revenue increasing the value of Australian exports, hence, improving the BOGS and causing a surplus in recent times. Australia experienced a doubling in its terms of trade, from 70 to 140 index points. In contrast, China and other emerging economies have improved Australia’s terms of trade, largely due to an inelastic demand for Australia’s raw commodities (increasing export prices), as well as flooding the international market with manufactured goods, decreasing import prices. Recently the 2015 year saw commodity prices it the hardest, falling 6.8% in the quarter and 13.5 per cent over the year in Australia dollar

The savings and investment gap revolves around the problem that Australia is a relatively small economy with a historically low level of national savings reflected in the household savings ratio, averaging 3.6% in the last decade. This means that Australia tends to fund a large part of its investment through international borrowing (which increases foreign debt) or selling ownership in Australian assets (which increases foreign equity. However, in recent years the household-spending ratio has increased to 20 year highs, reaching 9.4% in 2013-14. This has increased savings and reduced Australia’s net borrowing needs, easing pressure on the NPI and reducing the CAD. This has been a result of Australian government introducing compulsory superannuation and fiscal consolidation that has encourages public saving. It is therefore, the saving and investment gap is linked to current