Australia's Trade & Financial Flows: Basics Flashcards
What is the trend in Australia’s trade balance?
Usually in a slight deficit, but has increased from -3% in 2016 to 7% surplus in 2022
What are the phases of the mining boom?
2003: Price boom starts
2005: Investment boom starts
2012: Price and investment booms end; export boom starts (increased volumes)
Why has Australia’s trade balance improved and dipped in recent years?
The combination of increased commodity volumes following the mining investment boom and the recent spike in commodity prices
The terms of trade have fallen slightly since 2023
Why have commodity prices spiked (and dipped again) in recent years?
Prior to pandemic:
Dam collapse at Brazilian mine
During pandemic:
- Increased demand for goods (rather than services) during the pandemic
- Stimulus spending on infrastructure in China and US increased demand for commodities
After pandemic:
Sanctions on Russian commodities
Recent dip:
Slowdown in China reduced demand for commodities
How has Australia’s terms of trade changed over the past 10 years?
Fell to 80 in 2016 after the mining boom
Spiked to 144 in 2022
Now fallen to 130
Australia’s top 3 export sectors are…
- Resources
- Services
- Agriculture
What is a major trend in the composition of Australia’s exports?
Services (especially education) exports have grown over the past 15 years, but dropped significantly due to border closures affecting education and tourism
Resources make up ___% of Australia’s exports
67%
Australia’s top 2 types of imports are…
Usually services, though these haven’t fully recovered since the pandemic….
So currently, the top 2 are:
1. Consumer goods (e.g. cars, TVs)
2. Capital goods (e.g. machines)
Name 2 main trends in the composition of Australia’s imports
- Capital equipment imports grew dramatically during the mining boom, but have stayed steady since the investment boom ended.
- Service imports (especially tourism) fell dramatically during the pandemic
Name the top 2 destinations for Australia’s exports.
- China
- Japan
Which country is the main source of Australian imports?
China
What is a savings-investment gap?
Firms get money for expansion from borrowing from banks or selling shares. When individuals in a country don’t save enough by putting money into banks or buying shares, firms need to get that extra investment from overseas instead
In economics, equity means
Ownership of assets (such as shares, property)
Net foreign debt =
What Australia has borrowed - what Australia has lent
Net foreign equity =
What foreigners own in Australia - what Australians own overseas
Net foreign liabilities =
Net foreign debt + net foreign equity
If net foreign debt decreases, has it improved or worsened?
Improved
If net foreign debt increases, has it improved or worsened?
Worsened
If net foreign equity decreases, has it improved or worsened?
Improved
If net foreign equity increases, has it improved or worsened?
Worsened
If net foreign liabilities decreases, has it improved or worsened?
Improved
If net foreign liabilities increases, has it improved or worsened?
Worsened
What is the difference between net financial flows and net foreign liabilities?
Net financial flows only refer to money coming in and out in one particular year, whereas net foreign liabilities refer to the total debt and equity of the country that has accumulated over time
What has happened to the value of Australia’s net financial flows?
Inflows were usually greater than outflows, but since 2019 inflows have been less than outflows
What is the value of Australia’s net foreign debt?
Around $1.2 trillion (46% of GDP)
What has been the trend in Australia’s net foreign debt?
It increased gradually since the 1980s, but has fallen as a percentage of GDP steady over the past 5 years
Does net foreign debt measure debt owed by Australian firms, the Australian Government, or both?
Both
The majority of Australia’s net foreign debt is [business / government] debt, and the proportion of government debt is [rising / falling]
The majority of Australia’s net foreign debt is BUSINESS debt, and the proportion of government debt is RISING
What is the main trend in the value of Australia’s net foreign equity?
It was usually slightly positive, but has been negative since the end of the mining boom
What are the 2 main reasons for the improvement in Australia’s net foreign equity?
- Depreciation of the Australian dollar
- Growth in Australians’ superannuation savings over time
Australia’s net foreign liabilities are [greater than / the same as / less than] its net foreign debt
Australia’s net foreign liabilities are LESS THAN its net foreign debt (because net foreign equity is negative)
Name the top 2 sources of foreign investment into Australia
- US
- UK
Name the top 2 destinations of foreign investment out of Australia
- US
- UK
