Running on empty in sunny Australia

By Greg Ansley

Between the lines

Maybe living on the gold card isn't so bad after all.

While New Zealand anguishes over its marginally contracting but still daunting current account deficit, Australia is positively sanguine over its large and rising equivalent.

Even with two new record deficits in as many days, no one has dusted off the banana republic scare that threw such a tizz into the country in the mid-1980s.

On Monday the Bureau of Statistics reported that the April trade deficit had ballooned to a record $A1.9 billion.

Yesterday the bureau announced an all-time high March quarter deficit of $A8.85 billion, up 11 per cent on the previous three months and hovering close to the 6 per cent of gdp that in times past would have set the klaxons blaring.

But today, even with the export drag, the latest growth figures are expected to show the economy is still moving along at a comfortable pace.

So Treasurer Peter Costello isn't overly worried about red ink on the trade ledger. Nor is Treasury Secretary Ted Evans, who tends to view the deficit as a kind of affirmation of the validity of Australia's economic direction.

Nor, for that matter, are the normally hypersensitive currency markets. With its musclebound performance during the Asian crisis, Australian self-esteem is running high.

The trade deficit may nudge above 6 per cent of gdp at some stage this year, but Treasury forecasters confidently expect it to average out about 5.25 per cent in 1999-2000, slightly below last year's level.

The deficit has risen because Australia's economy during the crisis has been driven domestically by consumption, powering growth on one hand but increasing import demand on the other.

At the same time exports have suffered from weak world commodity prices and severe contraction in its key Asian markets.

So exports have fallen - by a seasonally adjusted $A537 million in April alone. But Australia expects its economy to slow later in the year.

Combined with a forecast recovery in export demand and prices, analysts predict the current account deficit will again contract.

And there is what Mr Evans calls the "consenting adult" deficit, involving acceptance of a structural current account deficit.

This holds that a mature Australia has preferred to finance its investment from other people's savings rather than its own, and that those investors have been sufficiently impressed by Australia's "stress-tested" economic institutions and policy framework not to panic.

But there remains the nagging concern that even consenting adults may not remain so amenable if Australia's export performance does not click into the expected new growth cycle, which will depend on the ability to expand existing markets and develop new ones.

Sooner or later the gold card falls due.