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Australia's Current Account Deficit Narrows

cnbc.com
Monday, 4 Dec 2006 | 9:33 PM ET

Australia's current account deficit narrowed 9% in the third quarter as a much improved trade performance added to economic growth for the first time in almost five years.

The deficit shrank to A$12.08 billion (US$9.5 billion), from a revised A$13.29 billion in the second quarter, but higher interest and dividend payments abroad kept it above analysts' forecasts of A$11.0 billion.

The Australian Bureau of Statistics said net exports contributed 0.4% to quarterly gross domestic product or GDP, a big turnaround from the second quarter when the trade gap lopped 0.2 % off growth.

Other data on Tuesday showed total government spending and investment rose 0.5% in the third quarter to A$52.65 billion, also adding slightly to economic growth.

Still, those contributions only partly offset the drag from softer business investment and a big run down in business inventories, leaving analysts pencilling in a very modest rise in economic growth for the last quarter.

The GDP report is due on Wednesday and until this week analysts had been looking for growth of 0.7% or better after a pedestrian 0.3% rise in the second quarter.

Australian manufacturing activity slowed slightly in the quarter while firms reported a lack of spare capacity and great difficulty finding suitable labor, a private survey showed on Tuesday.

The quarterly survey from the Australian Chamber of Commerce and Industry and Westpac Banking Corp. showed capacity utilization had risen for the third straight quarter, to be at the third highest level in 17 years.

The survey's Composite Index of Activity dipped 1.3 points to 54.9 this month, but that came after a strong 7.8 point jump in the third quarter. The index was still well above its decade average of 51.8, indicative of solid, above-trend growth in manufacturing, the survey said. The index that measured expectations for the coming quarter fell 3.8 points to 53.8.

That softening and lack of selling price power could give some encouragement for those hoping interest rates won't rise further. The Reserve Bank of Australia holds its December policy meeting on Tuesday and the data merely reinforced expectations it would leave rates at 6.25%. The central bank has raised rates three times since May in an effort to restrain inflation and still has an implied tightening bias.

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