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Trade deficit widens as export prices fall

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December 04 2012, 2:21PM

Falling coal and iron ore prices have pushed Australia's external deficit to its highest level in two-and-a half years.

The Australian Bureau of Statistics (ABS) said on Tuesday that the current account deficit was $14.9 billion in the September quarter, from $12.369 billion in the June quarter.

Macquarie senior economist Brian Redican said the main reasons for the widening of the deficit was recent falls in commodity prices and the Australian dollar still staying high.

"That's also the main reason why mining investment plans are being pulled back," he said.

"The big fall in the terms of trade reversed that positive income effect over recent years and also resulted in the blowout of the current account deficit.

"Usually that would have been reflected in a weaker currency but obviously with those sovereign and financial inflows into Australian financial markets we're not getting that shock absorber for the economy."

JP Morgan economist Ben Jarman said the decline in commodity exports was a drag on the trade figures.

"The decline in the metal ores and minerals, and coal, coke and briquettes export groups together more than accounted for the deterioration in the current account deficit over the third quarter," ," Mr Jarman said.

"Over the quarter, the weakness of exports of non-rural goods were compounded by the soft performance of the agriculture sector, though the magnitude of the latter was less intense."

The balance of payment figures lead into the September quarter GDP numbers, to be released on Wednesday, which Mr Jarman says will be lower than previously expected.

"We expect third quarter GDP growth tomorrow to come in at a meagre 0.2 per cent," he said.

"Given the absence of growth in most of the other components of domestic demand, we remain of the view that tomorrow's GDP print will come in on the low side."

By Jason Cadden