Australia's export base is heavily weighted towards primary products and commodities, giving it a "narrow" structure. This narrow export base exposes Australia to large fluctuations in commodity prices and negatively impacts the current account balance. While Australian governments have implemented reforms to broaden the export base and improve competitiveness, the structure remains heavily reliant on a small number of primary goods and commodities, posing risks for Australia's terms of trade and current account.

1. Issues and Trends in
the Balance of
Payments

2. 1. The structure of
Australia’s export base
• Australia’s export base includes all of the
products that Australia produces for export
• Australia’s export base has a significant
impact on the inflow of funds on the current
account
• Australia’s export base is heavily weighted
towards primary products, commodities etc

3. The structure of Australia’s
export base
• This is often termed a “narrow” export base
because we are relying on a few products
for export $$
• a “narrow” export base is not good for the
CAD as we are exposed to large fluctuations
in commodity prices
• Despite the fact that this has been
increasingly seen as a problem for Australia,
exports have been become more heavily
focused on these products

4. The structure of Australia’s
export base
• Concern is also sometimes raised that
Australia does not have an adequate IT
sector or manufacturing sector and this
means that we are two reliant on imports
(meaning a higher CAD)
• many economists suggest that Australia
needs to broaden its “export base” by
producing more manufactured goods and
exporting many more services

5. 2. International
competitiveness
• If Australia is not competitive on an
international scale, it will be very difficult to
improve trade performance
• Australian exports have typically not been
very competitive on an international level
• Improving the international competitiveness
of Australian businesses ultimately depends
upon paying attention to specific industries
and their performance

6. 3. Structural Change
• Microeconomic reform policies are those
government policies which aim to improve the
efficiency and productivity of producers
within individual industries
• Australian governments have implemented
extensive microeconomic reforms over the
past 20 years in an attempt to broaden our
“export base”
• these reforms have attempted to address
structual factors which affect our

7. Structural Change
• These microeconomic reforms have attempted
to address structural factors which affect
our international competitiveness such as:
• inflation
• wages growth
• productivity levels
• efficiency of the public sector

8. 4. Terms of Trade
• The Terms of Trade shows the relationship
between the prices that Australia receives
for its exports and the prices that it pays
for its imports
TERMS OF EXPORT PRICE INDEX
= x 100/1
TRADE IMPORT PRICE INDEX

9. Terms of Trade
• E.g. if export prices are increasing relative
to import prices then Australia’s terms of
trade will improve
• On the other hand, if import prices are
increasing relative to export prices then
Australia’s terms of trade will deteriorate
• Australia’s narrow export base has been a
consistent problem for Australia’s Terms of
Trade in recent years