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Current account deficit shrinks to $11.8 billion in the second quarter

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A benign reading for Australia’s balance of payments data is unlikely to change the view that the economy is growing at a moderate pace.

Australia’s current account deficit narrowed to $11.801 billion in the June quarter, seasonally adjusted.

This was just below the median market forecast of a $12.2 billion deficit.

The deficit on goods and services in chain volume terms (adjusted for price changes) decreased $871 million. That would add a 0.3 percentage point to growth in the June quarter measure of gross domestic product (GDP), the ABS said.

Macquarie senior economist Brian Redican said the data was unlikely to worry the market much, with few surprises ahead of GDP data due out on Wednesday.

“Contribution to growth from net exports was weaker than we had thought, so that was a bit of a downside risk,” he said.

“But, offsetting that was government spending, which was much stronger than we thought.

“They do offset each other, so we wouldn’t be changing our GDP forecasts.”

Commonwealth Bank senior economist John Peters says a smaller current account deficit, along with the stronger government spending figures, bodes well for the June quarter GDP figures.

“That’s the key point to take from this data, and when you throw in the government spending numbers, that’ll add 0.5 percentage point to GDP growth,” he said.

“It’s the final two pieces of the GDP jigsaw. So, we’re predicting 0.8 per cent for the June quarter and that translates to about 3.75 per cent in annual terms.”

Mr Peters said the current account figures showed that the mining boom had some way to go, despite a small fall in international investment.

“We are of a view, similar to the Reserve Bank (of Australia), that the mining boom has got plenty in it for the next couple of years,” he said.

“We think there is still some way to come in the investment boom in the mining sector in particular.

“While prices in commodities are coming off, we think, in volume terms, exports in iron ore and coal will pick up in the coming couple of years on the back of that renewed investment.