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Drought, imports lift Australian deficit
By Geoff Hiscock
SYDNEY, Australia (CNN) -- Australia's current account deficit has widened to Aust. $7.87 billion ($4.4 billion) as the worsening drought takes its toll on exports and strong import demand continues unabated. That lifts the deficit to 4.3 percent of gross domestic product (GDP) -- a figure that economists say is well within the country's ability to handle. Australian Treasurer Peter Costello said the third-quarter balance of payments figures released on Friday were in line with the government's expectations, and were consistent with strong demand for consumer and capital goods. He said the drought's impact was also being reflected in rural exports, which fell 2.8 percent quarter on quarter. The September quarter figure compared with a revised deficit of Aust. $7.3 billion in the June quarter. Release of the figures follows the government's mid-year economic review on Wednesday, which saw Costello cut the growth outlook for the year to next June by 0.75 percentage points. (Full story) Revised forecast
Costello said that because of the drought, which has gripped much of Australia for the past six to 12 months, the government had revised its forecast for 2002-03 down to 3.0 percent growth in gross domestic product (GDP), from 3.75 percent six months ago. Australian Bureau of Statistics figures show a A$566 million deterioration in the current account balance in the September quarter over the June quarter. This was driven by a A$483 million rise in Australia's trade deficit and a A$56 million rise in the net income deficit. The current account is the broadest measure of trade in goods, services and investment income. HSBC Australia senior economist Anthony Thompson said in a commentary that the widening deficit was a "natural consequence" of Australia's economy growing at a faster pace relative to the global economy over the past year. It particularly, Australia's growth has outstripped that of key trading partners such as Japan, the U.S. and the E.U. Export volumes fell 0.7 percent quarter on quarter, though price rises meant that nominal total exports of goods and services rose 0.3 percent. HSBC's Thompson said the drought would make heavier inroads on rural exports in subsequent quarters. Business investment"Meanwhile, import growth will remain solid, supported by increased business investment." Thompson said HSBC was revising its third-quarter GDP growth forecast from 1.0 percent down to 0.8 percent quarter on quarter, because the net export contribution was weaker than expected. Other economists say the overall outlook is robust, even with the drought factor, because of demand resilience. But Nomura Australia economist Tom Kenny cautioned that unlike the past year, Australia did not have the support of a "voracious housing boom" to support the economy. "This means the (central) Reserve Bank of Australia is likely to monitor the global situation closely. As such, we expect rates to remain on hold for the foreseeable future," he said. Earlier this month, the central bank left its benchmark interest rate unchanged at 4.75 percent, amid worries about a weaker global economic outlook and the impact of the drought. (Full story) Grain crops in particular have been hit hard, with the national commodities forecaster ABARE last month slashing its winter harvest outlook for the world's No.2 wheat exporter. (Full story) ABARE's forecast of just 14.8 million tonnes in 2002-03 for the four main crops -- wheat, barley, canola and lupins -- is down 57 percent from last season's near-record harvest of 34.1 million tonnes.
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