Balance of Payments and International Investment Position, Australia

• Due to the impact of COVID-19 trend estimates have been suspended in this publication from June quarter 2019.
   

• The current account surplus, seasonally adjusted, rose $6,673m to $8,395m in the March quarter 2020, as COVID-19 effects impacted international trade. The balance on goods and services surplus rose $5,628m to $19,188m. The primary income deficit fell $822m to $10,612m.
• In seasonally adjusted chain volume terms, the surplus on goods and services rose $2,292m from $8,628m in the December quarter 2019 to $10,920m in the March quarter 2020. This is expected to contribute 0.5 percentage points to growth in the March quarter 2020 volume measure of GDP.
   

• Australia's net IIP liability position was $808.1b at 31 March 2020, a decrease of $101.4b on the revised 31 December 2019 position of $909.5b. Australia's net foreign debt liability position increased $3.8b to $1,146.3b. Australia's net foreign equity asset position increased $105.3b to $338.3b at 31 March 2020.
   

The trend series attempts to measure underlying behaviour of economic activity. In the short term, this measurement will be significantly affected by the current COVID-19 pandemic and subsequent changes to regular patterns in behaviour that will occur during this time. If the trend estimates in this publication were to be calculated without fully accounting for this unusual event, they would provide a misleading view of underlying activity within the balance of payments.

It may be some time before the underlying trend in the balance of payments can be accurately estimated. The trend series has therefore been suspended from June quarter 2019 and will be reinstated when more certainty emerges in the underlying trend.

International Accounts uses the concurrent seasonal adjustment method, meaning that seasonal factors are re-estimated each time a new data point becomes available. If not appropriately accounted for, unusual real-world events, such as COVID-19, can distort estimates calculated using this method. From March quarter 2020, seasonal factors that have been notably impacted by these events will be calculated using data up to and including December quarter 2019, then projected from March quarter 2020 onwards. This approach, known as the forward factor method, ensures that the seasonal factors are not distorted by COVID-19 impacts.

Estimates of travel services credits, which includes expenditure by international students/visitors in Australia, fell 19.2% in the March quarter 2020. The potential impact of international travel restrictions on the travel service credits have been reduced as approximately 80% of international students were in Australia at the time restrictions took effect. This data is sourced from the Department of Home Affairs' numbers of student visa holders in Australia (https://www.data.gov.au).

Quality assurance undertaken by the ABS confirmed that the COVID-19 pandemic and bushfires did not result in quality impacts to Balance of Payments and International Investment Position statistics for March quarter 2020. For information on the expected economic impacts of COVID-19 and the bushfires, please see the ABS Chief Economist Series paper Measuring natural disasters in the Australian economy.

In original current price terms, the March quarter 2020 current account surplus was $9,249m, a rise of $7,079m on the December quarter 2019 surplus. In original current price terms, the balance on goods and services was a surplus of $20,835m, primary income was a deficit of $11,183m and secondary income was a deficit of $403m.

In original current price terms, the March quarter 2020 capital and financial account deficit was $11,599m, a rise of $10,432m on the December quarter 2019 deficit. In original current price terms, the capital account was a deficit of $186m and the financial account was a deficit of $11,413m.

The contributors to the current account balances, in original terms at current prices, are shown in the following table.

In seasonally adjusted current price terms, the March quarter 2020 current account surplus was $8,395m, a rise of $6,673m on the December quarter 2019 surplus.

The contributors to the current account balance, in seasonally adjusted terms at current prices, are shown in the following table.

Australia's seasonally adjusted terms of trade on net goods and services for the March quarter 2020 rose 2.9% to 106.5, with an increase of 2.4% in the implicit price deflator (IPD) for goods and services credits and a decrease of 0.5% in the IPD for goods and services debits.

In seasonally adjusted chain volume terms, the balance on goods and services was a surplus of $10,920m, a rise of $2,292m on the December quarter 2019 surplus of $8,628m.

The surplus on goods rose $2,358m on the December quarter 2019 surplus of $6,595m. Goods credits fell $533m (1%) and goods debits fell $2,891m (4%). The surplus on services fell $66m on the December quarter 2019 surplus of $2,032m.

The rise in the balance on goods and services surplus, in seasonally adjusted chain volume terms, is expected to contribute 0.5 percentage points to growth in the March quarter 2020 chain volume measure of GDP, assuming no significant revision to the GDP chain volume estimate for the December quarter 2019.

In seasonally adjusted terms at current prices, net goods was a surplus of $19,302m, a rise of $5,875m on the December quarter 2019 surplus of $13,427m.

In seasonally adjusted terms at current prices, net services was a deficit of $114m, a turnaround of $247m on the December quarter 2019 surplus.

The conditions in the global economy showed a decline in growth in all of Australia’s major trading partner countries in the March quarter 2020. According to the Organisation for Economic Cooperation and Development (OECD) (footnote 2) preliminary growth rates compared to last quarter in seasonally adjusted terms showed quarterly growth for China (-9.8%), France (-5.8%), Spain (-5.2%), Belgium (-3.9%), EU 27 (-3.3%), Germany (-2.2%), UK (-2.0%), Netherlands (-1.7%), South Korea (-1.4%), USA (-1.2%), Japan (-0.9%), and Indonesia (-0.7%).

• Foreign asset transactions recorded an outflow of $41.1b in the March quarter 2020 compared to an inflow of $5.4b in the December quarter 2019
• Foreign liability transactions recorded an inflow of $29.7b in the March quarter 2020 compared to an outflow of $6.4b in the December quarter 2019.
   

The Australian share market, as measured by the MSCI global index (footnote 3), decreased 24.3% in the March quarter 2020, compared to a decrease of 0.7% in the December quarter 2019. Decreases were recorded in France (26.1%), Germany (25.5%), UK (24.9%), Singapore (24.1%), Canada (21.0%), the USA (20.0%), Japan (18.2%), Hong Kong (18.2%), Switzerland (12.4%), China (10.3%) and New Zealand (5.5%). A market price change of $232.2b was recorded for foreign equity assets and -$240.5b for foreign equity liabilities in the March quarter 2020.

According to Thomson Reuters (footnote 4), the composite corporate benchmark yields increased in the USA from 2.94% to 3.77%, the UK from 1.99% to 2.49%, Germany from 0.63% to 1.78%, and Japan from 0.41% to 0.48% over the March quarter 2020. The long-term 10 year government bond yields decreased in the USA from 1.92% to 0.70%, Australia from 1.20% to 0.89%, the UK from 0.82% to 0.36%, Germany from -0.19% to -0.46% over the March quarter 2020. Whereas the long-term 10 year government bond yield increased in Japan from -0.02% to 0.02% over the March quarter 2020. A market price change of $4.5b was recorded for portfolio investment debt securities assets and $10.4b in portfolio investment debt securities liabilities in the March quarter 2020.

The Australian dollar depreciated against almost all major and minor trading currencies in the March quarter 2020. The Australian dollar depreciated 12.22% against the Japanese yen, 12.21% against the Hong Kong dollar, 11.86% against the US dollar, 10.45% against the Chinese renminbi, 10.38% against the European euro, 6.25% against the UK pound sterling, 4.12% against the Canadian dollar and 1.49% against the New Zealand dollar. The Australian dollar appreciated 3.90% against the Indonesian rupiah. The Trade Weighted Index (TWI) (footnote 5) fell 9.29% to 54.700 in the March quarter 2020. These movements were reflected in exchange rate changes for foreign assets of -$208.3b and foreign liabilities of $145.6b in the March quarter 2020.

The following goods component has been revised since the release of the March 2020 issue of International Trade in Goods and Services, Australia (cat. no. 5368.0).

• capital goods n.e.s. component of goods debits, revised in the March quarter 2020.
   

Table 28 summarises revisions, in original current price terms, since the last issue of this publication.

Incorporation of the latest survey and administrative data has resulted in revisions to the balance of payments series back to the September quarter 2018. In original current price terms, these revisions have:

• decreased the current account deficit for September quarter 2018 by $137m
• decreased the current account deficit for December quarter 2018 by $82m
• increased the current account deficit for March quarter 2019 by $56m
• increased the current account surplus for June quarter 2019 by $36m
• increased the current account surplus for September quarter 2019 by $614m
• increased the current account surplus for December quarter 2019 by $325m.
   

The International Investment Position (IIP) has been revised back to the September quarter 2018. These revisions have increased Australia's net IIP liability $18,027m to a net liability position of $909,509m at 31 December 2019.

The financial account deficit has been revised down $661m to $993m at 31 December 2019.

Seasonally adjusted and trend series have been revised due to the incorporation of revised estimates and the incorporation of estimates for the latest quarter.

In seasonally adjusted terms, the revisions decreased the volume surplus on goods and services by $798m for the December quarter 2019.

Data in this issue aligns with the data in the March quarter 2020 issue of Australian National Accounts: National Income, Expenditure and Product (cat. no. 5206.0) to be released on 3 June 2020.

The trend series attempts to measure underlying behaviour of economic activity. In the short term, this measurement will be significantly affected by the current COVID-19 pandemic and subsequent changes to regular patterns in behaviour that will occur during this time. If the trend estimates in this publication were to be calculated without fully accounting for this unusual event, they would provide a misleading view of underlying activity within the balance of payments.

It may be some time before the underlying trend in the balance of payments can be accurately estimated. The trend series has therefore been suspended from June quarter 2019 and will be reinstated when more certainty emerges in the underlying trend.

International Accounts uses the concurrent seasonal adjustment method, meaning that seasonal factors are re-estimated each time a new data point becomes available. If not appropriately accounted for, unusual real-world events, such as COVID-19, can distort estimates calculated using this method. From March quarter 2020, seasonal factors that have been notably impacted by these events will be calculated using data up to and including December quarter 2019, then projected from March quarter 2020 onwards. This approach, known as the forward factor method, ensures that the seasonal factors are not distorted by COVID-19 impacts.

Goods credits data presented in this publication are based on information provided by exporters to the Department of Home Affairs (Home Affairs). At the time of initial reporting to Home Affairs, the final prices at which transactions take place are not known for some commodities. Final quantity and/or unit price information is updated progressively in international merchandise trade data as exporters revise the information provided to Home Affairs.

For commodities such as iron ore and coal, newly negotiated contract prices are not fully reflected in data first reported to Home Affairs. When additional information on quantity and/or unit price for these commodities is available, the ABS may adjust the data to reflect actual transaction values.

Iron ore adjustments are applied on an international merchandise trade basis at the Australian Harmonized Export Commodity Classification (AHECC) level. Coal, coke and briquettes are adjusted on a balance of payments basis in original current price terms. When actual final transaction prices become available estimates are replaced with these data.

In most instances, transfer of ownership occurs when goods cross the customs frontier. In certain circumstances the ownership of large value capital expenditure items can occur prior to the items crossing the customs frontier. The ABS may adjust the relevant balance of payments series to record the timing when transfer of ownership was effected.

Iron ore (in original terms)

• adjustments have been applied to iron ore lump in the September quarter (+$15m), the December quarter (+$90m) 2019 and the March quarter (-$15m) 2020. Adjustments have been applied to iron ore fines in the September quarter (+$5m), the December quarter (+$100m) 2019 and the March quarter (-$290m) 2020, When actual final transaction prices become available estimates are replaced with these data.
   

Coal (in original terms)

• adjustments have been applied to coal, coke and briquettes in the balance of payments series for the March quarter (-$695m) 2020. All previous adjustments have been removed.
   

Capital expenditure (in original terms)

• the balance of payments goods debits component capital goods n.e.s. includes an estimate of expenditure on capital goods that have changed ownership but have not yet crossed the customs frontier.

The publication International Investment Position, Australia: Supplementary Statistics, 2019 (cat. no. 5352.0) was released on the ABS website on 7 May 2020.