Trade Boost For Home Buyers

The surge in rural exports shown in yesterday's trade figures offers home-buyers at least a temporary respite from the prospect of higher interest rates.

The current account deficit for December of $941 million was lower than expected, and should relieve the pressure on the Federal Government to further tighten monetary policy.

The Government can now probably afford to wait until the end of the month for the release of the consumer price index for the December quarter before deciding whether to raise interest rates.

Although the Treasurer is still on holiday, the good trade news provided a small present for Mr Keating on his 45th birthday.

But with the trend in seasonallyadjusted imports still down, Government spokesmen were reluctant to make too much out of one month's figures.

Opposition spokesmen called for further spending cuts, claiming that continuing reliance on tight monetary policy was having a damaging effect on home-buyers and on the economy.

The $941 million deficit last month is a major improvement on the $1.54 billion recorded in November, but is still nearly 40 per cent higher than the figure for December 1987.

The fact that the improved performance was largely due to higher rural exports indicates that Australia remains highly vulnerable to a fall in commodity prices.

The accumulated current account deficit since June is now $7.9 billion, 26 per cent higher than in the same period last year.

This means the Government has virtually no chance of achieving its Budget forecast of a $9.5 billion deficit in 1988/1989.

Exports rose by 4 per cent in December, with rural trade up by 11 per cent, or $154 million. Wheat lifted cereal exports by 39 per cent (or $61 million), and wool jumped by 10 per cent ($61 million). Offsetting this were lower non-rural exports, which dropped by $17 million, reflecting falls in gold, metal ores and minerals.

Manufactured exports failed to pick up. Machinery, transport equipment and other goods totalled $491 million, down $24 million or 4.7 per cent from November.

In seasonally adjusted terms, exports rose 13 per cent ($435 million), but the Australian Bureau of Statistics warns that this figure may be distorted by a change in the timing of the lodgment of returns.

Imports fell by 11 per cent, or $455 million, although this mostly reflects the lower number of trading days in December. The main decreases were recorded in machinery imports (down by $158 million or 12 per cent) and manufactures(down $104 million, 12 per cent), which suggests that high local interest rates may be discouraging business investment.

Aircraft imports increased to $193 million, from $126 million in November.

As a consequence of the overall improvement in exports and imports, the trade deficit fell by $592 million to its lowest level in six months at $18 million.

In seasonally adjusted terms, however, the decline in imports is not as impressive, down only $68 million or 2 per cent.

The resilience in imports shows that the recent round of interest rate increases has been only moderately effective in dampening demand.

The net services deficit fell by $41 million or 22 per cent, as the number of tourists increased because of seasonal factors, and freight costs fell in line with the lower level of imports.

Financial markets failed to be cheered by the better result. Money market interest rates continued to rise, adding to the pressure on banks to increase charges for home loans and corporate lending.

Higher interest rates, combined with the better trade figures, pushed the dollar to 64.6 on the Reserve Bank's trade-weighted index, its highest level since July 1985.

The acting Treasurer, Mr Dawkins, highlighted the significant drop in demand-influenced imports and the resurgence in rural exports.

He said the most significant of these factors was the increase in imports caused by the surge in business investment. Although this was vital to boost Australia's trade performance in future years, it was having an adverse effect on the current account.

The strong level of activity in the economy meant that local demand had soaked up many local products which might otherwise have been exported.

In addition, the rundown in rural stocks meant less produce was available for export.

"The December figures suggest that these negative influences on the trade accounts have begun to weaken," Mr Dawkins said.

PAGE 10: Editorial. PAGE 29: Improved deficit inspires dollar rally