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Australia’s current account deficit in a global imbalances context

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  • Phil Garton

    (Treasury, Government of Australia)

  • Matt Sedgwick

    (Treasury, Government of Australia)

  • Siddharth Shirodkar

    (Treasury, Government of Australia)

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    Abstract

    This article looks at Australia’s current account deficits in light of concerns about the role of external imbalances in the global financial crisis and the difficulties now facing a number of countries that have run large current account deficits in recent years. Australia is clearly differentiated from other deficit countries in that recent high deficits have been driven by rises in non-housing investment — mainly in response to high resource prices — while national saving has been increasing. This suggests that our deficits are less likely to reflect underlying imbalances in the economy.It is plausible that Australia could maintain large inflows of foreign capital for some time, given resource demands from China and India. This would imply a further rise in our net foreign liabilities as a share of GDP. However, the trade balance adjustment that will be needed eventually to stabilise this share does not appear onerous, particularly as investment in the resources sector will boost future export supply.

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    File URL: http://archive.treasury.gov.au/documents/1783/PDF/03_Australias_Current_Account_Deficit_in_a_global.pdf
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    Bibliographic Info

    Article provided by Treasury, Australian Government in its journal Economic Roundup.

    Volume (Year): (2010)
    Issue (Month): 1 (April)
    Pages: 29-50

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    Handle: RePEc:tsy:journl:journl_tsy_er_2010_1_1

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    Related research

    Keywords: current account; foreign direct investment; debt sustainability;

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    1. Maurice Obstfeld & Kenneth Rogoff, 1994. "The Intertemporal Approach to the Current Account," NBER Working Papers 4893, National Bureau of Economic Research, Inc.
    2. Obstfeld, Maurice & Rogoff, Kenneth S, 2005. "The Unsustainable US Current Account Position Revisited," Center for International and Development Economics Research, Working Paper Series, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkele qt4f63x50j, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
    3. Michael Kouparitsas, 2005. "Is the U.S. current account sustainable?," Chicago Fed Letter, Federal Reserve Bank of Chicago, Federal Reserve Bank of Chicago, issue Jun.
    4. Cashin, Paul & McDermott, C John, 2002. "Intertemporal Consumption Smoothing and Capital Mobility: Evidence from Australia," Australian Economic Papers, Wiley Blackwell, Wiley Blackwell, vol. 41(1), pages 82-98, March.
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