Import Binge Fuels Banana Republic Fears

Sydney Morning Herald

Wednesday January 11, 2006

John Garnaut

AUSTRALIA'S affection for imported Japanese cars, Chinese laptops and Scandinavian mobile phones has pushed the monthly trade deficit to $2.5 billion, raising fears that the dollar could soon tumble.

Just as economists were calling the end of Australia's four-year consumption binge, an 11 per cent rise in imported consumer goods resulted in a $1.1 billion jump in the import tab in November, bringing the total for the month to $17.6 billion.

Clifford Bennett, a currency forecaster at FxMax, said the deficit was "a real shocker", and could cause the dollar to suffer a "dotcom-type bubble burst".

"Australia, like New Zealand, continues to fail to capitalise on the global economic boom opportunity," he said.

The dollar fell slightly yesterday to US75.05 cents.

Australians imported more than $1 billion worth of cars in November, up 14 per cent on the month before. Imports of phones and other telecommunications equipment rose 18 per cent to a total value of $521 million.

Economists believe the surge suggests retailers overstocked their shelves for what was thought to be a modest Christmas shopping season. The widening trade deficit is likely to push the current account deficit back above the levels that prompted the "banana republic" warning of Paul Keating two decades ago.

Jarrod Kerr, a JP Morgan economist, estimated the current account deficit rose from 5.8 per cent of gross domestic product to 6.4 per cent in the December quarter - above the "banana republic" level of 6.2 per cent. He predicted rising interest and dividend payments to foreigners would push the current account deficit above 7 per cent by the middle of the year.

Kieren Davies, an economist with ABN Amro, said: "It is a pretty woeful result."

If there had not been the price surge for Australian export goods, and if other variables had remained the same, the September quarter current account deficit would have been 7.9 per cent of GDP, he said.

Exports were again disappointing, rising 1 per cent to $15.1 billion, despite the most favourable trade prices in a generation. Export volumes rose by an annual average of just 0.8 per cent from 2001 to September last year.

While mining firms can now dig and transport more iron ore, coal, natural gas and other minerals, their efforts have yet to be reflected in significantly larger export volumes. A spokeswoman for BHP Billiton said yesterday that the expansion programs had a "small" negative impact on recent export volumes, as operations were temporarily curtailed to allow new construction.

Much larger volumes of mining resources are expected in coming months.

Saul Eslake, ANZ's chief economist, said: "Despite the eternal optimism of forecasters . .. there is only limited evidence that the overall volume of exports is picking up at the expected pace."

The Bureau of Statistics warned the November import figures may have been affected "by some temporary changes" to the computer systems at Customs.

Computer problems stem from a botched outsourcing attempt in the mid-1990s. A former IT worker for Customs, Chris Conrick, said: "Since outsourcing things have gone to the dogs."

A former tax commissioner, Michael Carmody, has been called in to fix the problem.

© 2006 Sydney Morning Herald

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