In the midst of all the economic turmoil around us, I have been watching the trade numbers especially closely.
In recent years, the balance on goods and services (what Australia sells internationally less what the country buys) has been negative. This has been funded by private overseas borrowings, creating a channel down which the effects of the US sub-prime crisis flowed.
The most recent trade statistics from the Australian Bureau of Statistics show a very important turn-around in this position. In simple trade terms, the country moved from a net consumer to net saver at just the right time, thus cushioning the effects of the global financial crisis.
We can see this in the table below which shows exports, imports and the balance on goods and services, using seasonally adjusted data. All figures are in $AM.
Like all statistics, care must be exercised in drawing detailed conclusions without discussing the underlying basis of the statistics themselves. However, we draw some general conclusions without getting too bogged down.
Source. Australian Bureau of Statistics International Trade in Goods and Services Australia, October 2008, Catalogue 5368.0
Looking at the table, you can see the pattern of significant negative balances in the early period. Had we been in this position when the global financial crisis struck, we would have been in a great deal more trouble. Instead, the balance went into surplus at just the time we needed it to do so.
Expressed in Australian dollar terms, we continued to increase imports. However, this was more than offset by increased exports in Australian dollar terms. This meant that in the critical months August through October Australia generated a cumulative surplus of just over $A5.5 billion.
These are Australian dollar figures.
If you look at the September and October figures, you can see a sharp jump in both imports and exports. The Australian dollar depreciated sharply during this period against the US dollar, increasing both export and import prices in local currency terms. This was especially pronounced on the export side since 80% of Australian exports are sold in US dollars.
In effect, the global currency traders who dumped the Australian dollar delivered a net benefit to the country in trade terms. This could have been disastrous had it destroyed the Australian dollar market. As it was, the Australian Reserve Bank was forced to intervene several times, buying Australian dollars to maintain liquidity.
Again, the Bank's ability to do this was enhanced by the improvements in the balance of trade on good and services.