The shocking trade deficit for
January has focused on the sad fact of Australia’s lack of competitiveness
in trade and the consequent rapid build-up of international debt. Some of the
headlines have read: “Big current account deficits the villains in debt tale”;
“More vulnerable to the next economic shock”; and “Miners the only winners in
record trade collapse”.

The trade deficit for January was
adversely influenced by the hurricanes in the North-West of Australia, which
inhibited mining exports. But we are running out of excuses on the trade
deficit. Export volumes have been predicted to rise for years now – eg by
Treasury in successive budget estimates. But there has in fact been little
overall increase, and in some sectors such as manufacturing, exports have fallen
while drought has decimated rural exports.

The situation has been masked by the
substantial rises in the prices of mineral exports. The obvious question is
what happens when resource prices stop rising and begin to fall.

The trade deficit is not the whole
story, however. Australia’s net international debt
has been rising to the point where it was a whopping $493 billion at the end of
December. This is slightly over 50% of GDP, compared to less than 40% a
decade ago when the Liberal “Debt Truck” was rumbling around the nation.

There is another point of
potentially greater concern. The rapid accumulation of international debt has
occurred at a time of record low international interest rates, and global
interest rates are now on the increase.

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