INTERNATIONAL TRADE

The growing importance of international trade to the Australian economy is illustrated by the following graph which shows the ratios of exports and imports of goods and services to GDP in current prices since 1959-60. In 2006-07 the imports ratio was 21.8% and the exports ratio was 20.6%.

Since 2004-05 imports have increased 16.8% in volume terms compared to 6.2% growth in exports. The slower growth in Export was mainly driven by weak growth in rural goods exported. Over the past three years, rural goods exported decreased by $1,301m (5.1%). The decreases were largely driven by a fall in exports of cereal grains and cereal preparations, down $1,459m (28.3%).

While in volume terms Imports have been growing faster than Exports, the price received for Exports has been growing faster than the prices paid for Imports. The Terms of trade represents the relationship between the prices of exports and imports. An increase (decrease) in the Terms of trade reflects Export prices increasing (decreasing) at a faster rate than Import prices.

The strong growth in Terms of trade over the past six years reflected over 24.3% growth in Export prices and a fall in Import prices of 12.3%. See Prices for more details on Export and Import prices. In 2006-07, the Terms of trade increased by 6.7%, the lowest increase in the past three years.

Net exports represent the difference between Exports and Imports. Net exports detract from GDP growth when the change in the volume of Imports has been greater than the change in the volume of Exports. Since 2001-02 Net exports have detracted around 8.7% from GDP growth, in most part from increasing Imports.

Since 2002-03 when the contribution of Net exports to GDP growth was -2.3%, the contribution of Net exports has been slowly trending upwards reaching -1.1% in 2006-07.

In addition to the trade in goods and services, the flow of funds between Australia and overseas is an important component of relationship with the rest of the world. Australia has generally been a net borrower of funds from overseas. In the national accounts, this situation is reflected by a negative value for net lending to non-residents. The only exception to this pattern was in 1972-73. The ratio of net borrowing from overseas to GDP in 2006-07 was 5.5%, up slightly from 5.4 in 2005-06.