This appears to be the case now and is made more problematic in the current environment of intense globalisation with the expansion of low cost producers. With the dollar edging higher in recent months, export weakness is likely to remain a factor in the trade accounts.
Unlike exports, imports are on the rise.
There are several factors at play when it comes to the surge in imports which are up around 8 per cent in the past year. The high Aussie dollar is one of those. Imports are cheaper as the dollar rises. Just think of the appeal of an overseas holiday if the dollar is say, parity to the US dollar versus a time when it is languishing around 60 US cents. The same incentives apply to importers. There is some good news in the high import levels, with a strong rise in capital equipment imports over the past year. Indeed, in the 12 months to November, capital goods imports (machinery, equipment, cars, trucks and the like), rose to a record $72 billion. This is up a strong 14 per cent from a year earlier.
This positive trend on capital goods import reflects other news on the economy that is showing the start of a recovery in business investment which rose by around 2 per cent in each of the June and September quarters of 2017. With the NAB and illion surveys of business confirming a more upbeat view on capital expenditure into 2018, the rise in capital goods imports is not surprising and it should be reflected in stronger business investment right through 2018.
The international trade position is set for further deterioration into 2018, even if exports can reverse the recent weakness if commodity prices remain firm. The deterioration will be centred on further growth in imports.
With the Australian car industry closed, 100 per cent of new motor vehicles sales will be imported. And as business sector capital investment continues to recover, the high import component of such investment will feed through to further increases in the import bill.
Get set for on-going large trade deficits which should cap gains in the AUD and if interest rates keep rising in the US relative to Australia, might even lead to a weaker Aussie dollar by year end.