The appreciation in the Aussie dollar in the December quarter kept prices for imported goods in check, slowing the rate of decline in the terms of trade.
The expected decline in Australia’s national income through falling terms of trade proved smaller than feared in the final months of 2013.
Data on Thursday indicates the terms of trade – the ratio of export prices to import prices – stabilised in the December quarter, with an appreciation in the Australian dollar against its major trading currencies keeping the price of imported goods in check.
The more stable terms of trade over 2013 compares with a 20 per cent slump between the September quarter 2011 to the end of 2012.
In the federal government’s midyear budget review released before Christmas, it forecast a decline in the terms of trade of five per cent both in 2013/14 and 2014/15.
“We expect the terms of trade to move lower in 2014 as China’s economy experiences a loss of momentum and as global commodity supply expands further following significant investment in the sector,” Westpac senior economist Andrew Hanlan said in a note to clients.
The Australian Bureau of Statistics’ import trade price index declined 0.6 per cent in the December quarter for an annual growth rate of 5.2 per cent, while the export index eased 0.5 per cent in the quarter to be 6.2 per cent higher than a year earlier.
Declining investment in the resources sector during the quarter resulted in the value of definite projects drop by $25 billion compared with the previous three months, the worst quarterly outcome since the depths of the global financial crisis in late 2008.
According to Deloitte Access Economics, the total value of investment projects across the economy that were either definite or planned fell 0.8 per cent compared with the September quarter – or $7.4 billion to $866.3 billion – to be down 9.2 per cent over the year.
However, the independent forecaster said public infrastructure, particularly for transport, had been the focus of considerable discussion among policymakers in the past few months.
“That the state of Australia’s creaking urban infrastructure is stirring the passions of Australian policymakers gives hope that a more efficient system of identifying, assessing, financing and constructing public infrastructure may be in store,” Deloitte partner Stephen Smith said.
There are also indications that housing construction is starting to fill the vacuum left by a fading mining investment boom.
The Housing Industry Association said new home sales recorded their first annual increase over 2013, growing by 14.4 per cent.
“It is pretty clear that the housing sector is becoming the backbone of the Australian economic outlook,” Commonwealth Securities economist Savanth Sebastian said.
Prime Minister Tony Abbott has told his cabinet colleagues in their first meeting of the year that confidence is returning to the economy.
“My conviction is that 2014 is going to be a year of opportunity for Australia,” he said.