CAD during GFC (1 Viewer)

[heartnsoul]

Hey guys, so I was looking up some stats for the period during the GFC and I noticed that it fell to approximately 1.5% of GDP during March 2009 despite fluctuating between 3-6% since the deregulation of the $A. So, I was wondering, what is the cause of this? I have been reading conflicting answers, such as strong domestic demand and weaker overseas conditions worsening the CAD and depreciation the $A resulting in improvements in the CAD. So, which was it?

By the way, good luck this Friday!

 

[Cleavage]

alas, this has puzzled myself many times throughout the year

I would reason this result is due to the balance of goods and services (because that's what the stats say lol), and not a fluctuation in the net primary income deficit. During the GFC, domestic demand for imports fell, prompting the BOGS surplus in 2008/09.

Honestly, I'm trying to make a bullshit delineation from stats ahaha (linked below). I don't really know Thanks for your well wishes!

http://gyazo.com/383fa74f326aec7d865faed4825b3f34

 

[mreditor16]

alas, this has puzzled myself many times throughout the year

I would reason this result is due to the balance of goods and services (because that's what the stats say lol), and not a fluctuation in the net primary income deficit. During the GFC, domestic demand for imports fell, prompting the BOGS surplus in 2008/09.

Honestly, I'm trying to make a bullshit delineation from stats ahaha (linked below). I don't really know Thanks for your well wishes!

http://gyazo.com/383fa74f326aec7d865faed4825b3f34

+1

Could also maybe even talk about how China and co. kept on growing strong - largely unphased by the GFC - and thus their demand for our exports esp. commodities held strong, thus contributing to the BOGS surplus and thus the reduction of the magnitude of the CAD

 

[iStudent]

GFC-> GWP lowers-> consumer confidence lowered-> foreign investment lowered-> K inflow lowered-> relates to improvement in CAD (because capital/financial + C A = 0)

Also, imports decreased (lower confidence) but exports strong due to China's growth and continued demand for commodities. Thus BOGS improves.

 

[Colemans]

Whenever in doubt, just China it out.

 

[heartnsoul]

Thanks for the replies everyone!

About the primary income part, didn't world interest rates drop sharply? Would that not contribute to a fall in the primary income deficit? The stats seem to be saying it has been raising post crisis.

 

[this_guy22]

About the primary income part, didn't world interest rates drop sharply? Would that not contribute to a fall in the primary income deficit? The stats seem to be saying it has been raising post crisis.

A fall in world interest rates relative to Australia would result in increasing foreign investment inflows. This is because investors can get a higher return on investment in Australia, as higher domestic rates mean that returns on investment must be higher than the going rate of interest + inflation + a bit on the side for profit/risk. Even if they only pumped money into Australia to save it, the return would still be higher than in the likes of USA and Japan, which both have short-term rates near zero. As you know, the returns (interest, dividends, profits, etc.) will go back overseas, in the form of primary income debits, thus causing the primary income deficit to increase.

 

[Phaze]

Whenever in doubt, just China it out.

HSC Economics in a nutshell.