Risks of a sustained high Current Account Deficit (notes)

Risks of sustained high CAD include: - Growth of foreign liabilities - A CAD results in financial inflow, either in the form of borrowing from overseas (foreign debt) or through selling equity in items such as property/companies (foreign equity). This will mean that lenders may become more reluctant to lend to Aus or to invest in Aus, and decisions affecting the Aus economy will increasingly be made by international businesses and not be Australians …

…the combo of tighter macroeconomic policies & accelerated microeconomic reform is like to produce a slowdown in economic growth & rise in unemployment - Loss of international investor confidence - Investor confidence can change suddenly & countries with high CADs are more vulnerable to shirts in investor sentiment. When investors withdraw from an economy, it can often have a dramatic effect, sometimes triggering a major crisis (as seen in 1997 Asian financial crisis)