Increase in imports to weigh heavily on economic growth

20 Jan, 2010 04:21 AM

A RISE in imports could slow economic growth by as much as 0.75 per cent by blowing out the nation's trade deficit, analysts say.

Imports shot up 7pc last month, the Bureau of Statistics said yesterday, led by big increases for capital goods, oil and gold. While this reflected stronger spending, economists said the figures also indicated a trade deficit rise, creating a drag on national income.

UBS chief economist Scott Haslem said the higher figure threatened to increase the trade deficit to $2.2 billion from $1.7 billion for the December quarter.

Due to a quirk in the preparation of the national accounts, this weaker trade performance detracts from economic growth because it lowers net exports (exports minus imports), a component of national income.

''Some of our export demand is fading a little, and because things have improved domestically and we've become more confident, we are starting to import more product,'' Mr Haslem said. ''The fact that we've got such an increase in our imports means it's going to detract from our growth.''

Mr Haslem said the economy's growth rose to 0.5pc in the quarter, from 0.2pc in the previous quarter, as the Government withdrew stimulus spending.

In contrast, a combination of weak import spending and strong exports helped to prevent the economy from shrinking in the March quarter last year.

Yesterday's figures also show domestic demand is returning to health, with a 7pc rise in capital imports pointing to strong business investment.

A Westpac economist, Anthony Thompson, said the figures were an early clue that domestic demand was still moving at a strong pace in the quarter as conditions improved.

''You're getting a pick-up in import volumes, and that's not surprising, [given] the strengthening backdrop domestically and the strength of the currency,'' Mr Thompson said.



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