Australia’s deficit out to a record level

Australia's current account deficit widened to a record in the fourth quarter as imports rose and farm exports fell, while overseas investors earned higher profits from local companies.

The deficit in goods, services and investment in the three months to December 31 widened to A$15.2 billion ($16.5 billion) from a revised A$14.3 billion in the third quarter, the Australian Bureau of Statistics said in Sydney yesterday.

A 9 per cent gain in the Australian dollar in the fourth quarter eroded export earnings, while rising business investment fuelled demand for imports.

The deficit is "a perennial issue that can't be solved overnight," said Brendan Flynn, associate director of sovereign and public finance ratings at Standard & Poor's.

"If investor sentiment turns against Australia, it will make it hard for companies to find funds. It would also lead to currency weakness."

However, Australia has an AAA long-term rating from S&P, the top rating it gives.

"The current account deficit is looking shocking and suggests the Australian dollar is over-valued," said Stephen Koukoulas, chief Asian strategist and economist at TD Securities.

 

A report yesterday showed company profits rose a less-than-expected 0.3 per cent and inventories fell 0.3 per cent in the fourth quarter.

The Government will release its fourth-quarter gross domestic product report today.

"The current-account deficit will weigh on the Australian dollar throughout 2005," said Justin Smirk, senior economist at Westpac Banking Corp.

"That's one of the reasons we forecast the dollar falling."

Westpac forecasts the Australian dollar will fall to 70USc by December.

- BLOOMBERG