Why did the GFC cause Australia's CAD to improve? (1 Viewer)

[exum]

If you look at the diagram in the 2012 HSC paper for the Balance of Payments question, the current account deficit improved from about -7% of GDP to -2.5% between December 2007 and 2008. Why did this happen?

 

[dunjaaa]

The GFC caused a downturn in the international business cycle, thus world growth contracted but more importantly consumer confidence declined. As a result, foreign investment also declines, reducing the Australia's capital inflows which in turn slows the CAD hence why it improved. Consumer spending also diminishes reducing the expenditure on imports. Additionally, emerging economies namely China, experienced slightly slowed levels of growth but still positive growth, thus continuing to demand Australian commodities, ultimately Australia's saving grace during the GFC. As statistics indicate, Australia experienced a BOGS surplus during the GFC as exports exceeded imports which is another contributing factor to the improvement of the CAD in light of the GFC.

 

[Drifting95]

The GFC caused a downturn in the international business cycle, thus world growth contracted but more importantly consumer confidence declined. As a result, foreign investment also declines, reducing the Australia's capital inflows which in turn slows the CAD hence why it improved. Consumer spending also diminishes reducing the expenditure on imports. Additionally, emerging economies namely China, experienced slightly slowed levels of growth but still positive growth, thus continuing to demand Australian commodities, ultimately Australia's saving grace during the GFC. As statistics indicate, Australia experienced a BOGS surplus during the GFC as exports exceeded imports which is another contributing factor to the improvement of the CAD in light of the GFC.

Nailed it.