Causes and consequences of Australia‘s return to current account deficits

Research evidence excerpt

Causes and consequences of Australia‘s return to current account deficits

Deutsche Bank

Research

Australasia Foreign Exchange Date

Australia 29 June 2026

FX Special Report

Causes and consequences of Australia's

return to current account deficits

Lachlan Dynan

After decades of deficits, Australia's current account position flipped to surplus

Macro Strategist

from ~2020-2023, but that proved temporary as deficits returned more recently. In +61-2-8258-1132

the March quarter this year the current account deficit widened to be broadly in line

with its long-term historical average, and the trade balance slipped back into deficit

for the first time since 2017(Figure 1).

What are the drivers of this recent evolution, is it anything to be concerned about,

and what does it mean for the exchange rate?

n The recent dynamics (rise to surplus, then return to deficit) have been

exaggerated by some temporary factors that would inevitably unwind,

including: pandemic-era restrictions & savings behavior, and a surge in the

terms of trade exacerbated by the Russia-Ukraine war.

n But there are also some underlying drivers too, including a slow-down in

real goods exports as the mining sector hasn't been expanding capacity like

it was. Encouragingly though, part of the return to CA deficits reflects a rise

in the wider economy investment rate, which would be expected to help

real export growth down the track.

n Australia is ultimately a high-ish savings, high-investment economy, and in

good part the recent moves reflect a return to those norms. While declines

in current account balances can be cause for concern at times, that's not the

case when a meaningful portion reflects higher investment, and comes

against the backdrop of a healthy outlook for potential output growth and