Australia’s Trade Deficit Funding Housing Boom That’s About to Bust

This next year will be interesting for many reasons. First, it’s the next year, and that is always interesting. Second, China plays host to the world at the summer Olympics. Though this date doesn’t have any official importance in China’s rise, it is kind of a “coming out” party for China. But why is the next year interesting for Australia?

No one mentioned it during the campaign, but there’s a strange anomaly in Australia’s economic success. During the midst of the greatest resource boom of all time, Australia runs a trade deficit. The country imports more than it exports.

Export volumes, in fact, have been fairly flat for the last five years. The rise in commodity prices has kept export earnings high. But none of the business investment in new production capacity seems to have led to higher export volumes. This is somewhat alarming, especially for state governments that have committed to new spending projects based on projected royalties from resource exports. Have export volumes already peaked?

While export volumes have plateaued, imports continue to grow. After all, you build all those houses, you have to fill them up with things. And thus, the current account deficit – a large part of which stems from Australia’s trade deficit – continues to grow both in real terms and as percentage of GDP.

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