Australia's Trade & Financial Flows: Basics

Question 1

What is the trend in Australia’s trade balance?

Answer 1

Usually in a slight deficit, but has increased from -3% in 2016 to 7% surplus in 2022

Question 2

What are the phases of the mining boom?

Answer 2

2003: Price boom starts
2005: Investment boom starts
2012: Price and investment booms end; export boom starts (increased volumes)

Question 3

Why has Australia’s trade balance improved and dipped in recent years?

Answer 3

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

Question 4

Why have commodity prices spiked (and dipped again) in recent years?

Answer 4

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

Question 5

How has Australia’s terms of trade changed over the past 10 years?

Answer 5

Fell to 80 in 2016 after the mining boom
Spiked to 144 in 2022
Now fallen to 130

Question 6

Australia’s top 3 export sectors are…

Answer 6

1. Resources
2. Services
3. Agriculture

Question 7

What is a major trend in the composition of Australia’s exports?

Answer 7

Services (especially education) exports have grown over the past 15 years, but dropped significantly due to border closures affecting education and tourism

Question 8

Resources make up ___% of Australia’s exports

Answer 8

67%

Question 9

Australia’s top 2 types of imports are…

Answer 9

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)

Question 10

Name 2 main trends in the composition of Australia’s imports

Answer 10

1. Capital equipment imports grew dramatically during the mining boom, but have stayed steady since the investment boom ended.
2. Service imports (especially tourism) fell dramatically during the pandemic

Question 11

Name the top 2 destinations for Australia’s exports.

Answer 11

1. China
2. Japan

Question 12

Which country is the main source of Australian imports?

Answer 12

China

Question 13

What is a savings-investment gap?

Answer 13

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

Question 14

In economics, equity means

Answer 14

Ownership of assets (such as shares, property)

Question 15

Net foreign debt =

Answer 15

What Australia has borrowed - what Australia has lent

Question 16

Net foreign equity =

Answer 16

What foreigners own in Australia - what Australians own overseas

Question 17

Net foreign liabilities =

Answer 17

Net foreign debt + net foreign equity

Question 18

If net foreign debt decreases, has it improved or worsened?

Answer 18

Improved

Question 19

If net foreign debt increases, has it improved or worsened?

Answer 19

Worsened

Question 20

If net foreign equity decreases, has it improved or worsened?

Answer 20

Improved

Question 21

If net foreign equity increases, has it improved or worsened?

Answer 21

Worsened

Question 22

If net foreign liabilities decreases, has it improved or worsened?

Answer 22

Improved

Question 23

If net foreign liabilities increases, has it improved or worsened?

Answer 23

Worsened

Question 24

What is the difference between net financial flows and net foreign liabilities?

Answer 24

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

Question 25

What has happened to the value of Australia’s net financial flows?

Answer 25

Inflows were usually greater than outflows, but since 2019 inflows have been less than outflows

Question 26

What is the value of Australia’s net foreign debt?

Answer 26

Around $1.2 trillion (46% of GDP)

Question 27

What has been the trend in Australia’s net foreign debt?

Answer 27

It increased gradually since the 1980s, but has fallen as a percentage of GDP steady over the past 5 years

Question 28

Does net foreign debt measure debt owed by Australian firms, the Australian Government, or both?

Answer 28

Both

Question 29

The majority of Australia’s net foreign debt is [business / government] debt, and the proportion of government debt is [rising / falling]

Answer 29

The majority of Australia’s net foreign debt is BUSINESS debt, and the proportion of government debt is RISING

Question 30

What is the main trend in the value of Australia’s net foreign equity?

Answer 30

It was usually slightly positive, but has been negative since the end of the mining boom

Question 31

What are the 2 main reasons for the improvement in Australia’s net foreign equity?

Answer 31

1. Depreciation of the Australian dollar
2. Growth in Australians’ superannuation savings over time

Question 32

Australia’s net foreign liabilities are [greater than / the same as / less than] its net foreign debt

Answer 32

Australia’s net foreign liabilities are LESS THAN its net foreign debt (because net foreign equity is negative)

Question 33

Name the top 2 sources of foreign investment into Australia

Answer 33

1. US
2. UK

Question 34

Name the top 2 destinations of foreign investment out of Australia

Answer 34

1. US
2. UK