Define define
Analyse the impact of changes in the global economy on Australia’s current account deficit & net foreign debt

Global economy - The interdependence of all countries in the world which produce goods and services, which contribute to global GDP, GNI. Countries that make up the global economy are grouped by advanced economies (Australia, Japan, USA – over $20,000 GDP per capita), developing or less developed countries. All of these economies are affected by changes in the global economy. Any changes in the global economy will have an impact on all countries belonging to the global economy. If there are changes in the international business cycle, there will be repercussions with global foreign trade. There will be changes in global world output/demand.

If global world economic growth is faster than Australia’s economic growth, exports will increase faster than imports. The balance of payments on the current account would be expected to improve and move in to surplus. If Australia's domestic growth is faster than world growth, Australia will then import more than it exports, resulting in our CAD deteriorating. Higher levels of world growth leads to an increase in commodity pricing and appreciating exchange rates for countries like Australia. Lower world growth leads to lower commodity prices and a depreciating exchange rate for the Australian economy.

Changes in global financial flows would also impact the Australian economy. A rise in foreign investor confidence would lead to a rise in capital inflows. A country experiences a current account deficit when it imports more than it exports. Australia’s CAD is heavily influenced by changes in domestic and global economic growth. Stronger domestic growth increases the demand for imports, whilst stronger world growth leads to a greater demand for exports. CAD is also influenced by exchange rate movements, the cost of servicing Australia’s net foreign debt.

Net foreign...