Current account deficit narrows but net exports likely to drag GDP growth down

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Last quarter, the current account deficit narrowed to its smallest level in 15 years and it is the lowest as a percentage of GDP in 27 years. However, the increase in imports will detract 0.7 percentage points from GDP growth.

How does this relate to the HSC syllabus?

  • The Australian balance of payments is a record of all financial transactions between Australians and the rest of the world. Transactions are recorded into one of three accounts as debits (outflows) and credits (inflows). (HSC Topic 3)
    • The current account records trade and income transactions.
    • When total debits exceed total credits in the current account, there is a current account deficit (CAD). When total credits exceed total debits in the current account, there is a current account surplus.
    • When the current account deficit is large, it is usually an indicator that Australians are spending and borrowing more from overseas.
  • A component of the current account is the balance of goods and services or the trade balance.
    • Exports are considered inflows and imports are considered outflows in the balance of payments.
    • Because aggregate demand is also made up of the trade balance, when the trade balance becomes more negative (for example, through a greater amount of imports), it increases the current account deficit and decreases economic growth.

Unemployment falls to 5.5 per cent in May

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The unemployment rate decreases to 5.5 per cent in the month of May, surpassing many economists’ expectations. The total number of hours and number of full-time jobs also increased. Most of this boost in the labour market came from NSW.

How does this relate to the HSC syllabus?

  • The Australian Bureau of Statistics defines the unemployed to include persons 15 years and over who do not have a job, but are actively seeking one.
    • The unemployment rate is now at 5.5 per cent, which is the lowest unemployment rate in four years.
    • More than 52,000 people found new full-time jobs, while there was a drop in 10,100 part-time jobs.
  • However, underemployment remains high, at 8.8%, with 1.1 million people wanting more work but unable to find it.
    • Underemployment is technically not unemployment, but it refers to people who work less than full time and would like to work more.
    • It should be emphasised that we cannot simply look at one number such as the unemployment rate and make a conclusion about the state of the economy. The underemployment rate does suggest that there is still weakness in the labour market.
  • When the unemployment rate was announced, the Australian dollar jumped more than a third of a cent.
    • When favourable economic statistics are released, investor confidence in the Australian economy improves, leading to increases in demand for Australian assets and therefore appreciation of the currency.

Gary Liang GARY LIANG

Gary Liang is the founder and director of Keystone Education. He attended Sydney Boys High and achieved an ATAR of 99.95 in 2012. He achieved 5 state ranks in Mathematics, Mathematics Ext 1, Mathematics Ext 2, Chemistry and Economics. He is now studying Economics and Science (Advanced Mathematics) at the UNSW Australia, where he is the recipient of six scholarships. He has experience at a top tier investment bank.

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