No point trying to see what was posted earlier in the day thanks to one poster in particular.
I was going to see if anyone else had commented about today's Trade figures for October.
If not, today's Balance of Trade results for October showed: 1. a deteriorating trade balance (-$2,238M seasonally adjusted, compared to $1,997M SA in September, and market estimates of $2,000M); 2. a fall in export earnings (down 2%) with rural exports down and mining exports up; 3. flat imports for the month, with a rise in capital goods' imports; and 4. a trend result which now approximates 3.35% of GDP (based on October results, annualised), or 3.1% (based on August - October results, annualised), at a time when strong mining exports, and the seasonal build-up in rural exports should be to the benefit of the trade balance, not to its deterioration.
Once added to the persistent income deficit which has moved from ~3.2% of GDP (in 2Q04), to above 3.5% of GDP (in 3Q04), and is now trending towards 4%, the overall Current Account Deficit is deteriorating rapidly.
Earlier this year, the CAD looked to be breaching 6%.
More recently, the CAD (in 3Q04) was moving towards 6.2-6.3% of GDP (although, on some estimates, this ranged up as high as 6.5%).
Now, with the October Trade Balance, it seems that: 1. the Balance of Trade (BoT) is in the 3.1 - 3.35% range (annualised), but for the sake of argument, is now well above 3.2%; and 2. the Income Balance is in the 3.2 - 3.6% range (annualised), but for the sake of argument, is now above 3.4%.
Adjusted for this, it seems that the CAD (October snapshot) is now exceeding 6.6% of GDP.
If this trend continues, with: 1. equally poor (to worse) BoT figures now likely for each of November and December; 2. a $7,000M+/SA Income Balance now (more) likely for the December Quarter (the Income Balance deficit was $7,184M in 3Q04); and 3. another low GDP result likely for the December Quarter (est 0.4%), there is a clear outside possibility of the CAD hitting anywhere in the range, 6.8 - 7.1% of GDP, with 6.9% most likely (in my view).
12 months ago, the CAD was below 6% of GDP (ie: high 5's). Now, its threatening to hit 7% of GDP as early as 4Q04 (unless the export sector can now re-ignite).
The export sector has the benefit of higher volumes being exported, and higher export prices, but despite this, the net return in export earnings is being deflated quite heavily by the high A$.
The volatility in the A$ over the past week and a half can be traced to behavioural changes in the US$. But despite this, the A$ is also very much at risk of being heavily hit as: 1. the Australian slowdown in GDP starts spreading (ie: confirming itself going into 2005); 2. our export sector starts to falter (despite higher mineral exports /earnings); 3. our BoT and CAD positions deteriorate further; 4. the "hot" money starts moving out of A$ denominated interest accounts and back into US$ denominated interest accounts; 5. Australia's economic performance falters behind the US economy by a factor of 33 - 50% (ie: if USA GDP growth in 2005 is 4%, then I would expect Australia's GDP to be in the 2 - 2.7% range (with 2.2% more likely). That's a doubling of the 3Q04 annualised result, but well down on the 3Q04 YoY result; and 6. commodity prices (particularly in the areas where Australia enjoys a comparative advantage) come off the boil during 2005.
The risk is, therefore, quite real that the Australian economy will stall during 2005 unless the A$ is able to be pulled back to its "comparative trading range".
The risk of recession in 2005 also looms large, but for as long as: 1. Western Australia and Queensland keeps performing; 2. high commodity prices remain in place; and 3. Australia's population growth continues (aided by the recent uptick in the birth rate, and the continuation of a favourable /high immigration rate), then it is unlikely that Australia would actually slip into recession during 2005. The biggest risk to this outlook, however, is if commodity prices fall and /or if New South Wales stalls. At the moment, either of these possibilities would have to be considered an apparent (if not yet definite) risk.
With our CAD position clearly deteriorating, only a lower A$ will help restore some of the balance and provide us with the export results that the current high commodity prices should otherwise be providing to us. In doing so, however, it will worsen our Income Balance meaning that: 1. we have to maintain high commodity prices; 2. a lower A$; and 3. a ratio between the 2 that is biased towards commodity prices.
Currently, that's a tall (if not implausible) call going into 2005.
