The resource boom is well and truly over, buried by the financial crisis, the global slump and especially by the slowing pace of growth in our major Asian export markets of China, Japan and South Korea.
As a result, Australia is facing a $22 billion drop in commodity export returns over the rest of the current financial year.
The fall will come from lower prices for mining and energy exports as returns from rural exports is forecast to rise. And even then it depends on the current low value of the Australian dollar being sustained. (But further weakness would boost returns in Australian dollar terms).
That will leave commodity and resource exports much higher than they were in 2008, but the 37% rise now in prospect is sharply down on the 53% improvement forecast three months ago.
There is also every likelihood that the forecasts will shrink in coming months as the recessions in Japan, South Korea, new Zealand, Europe and the US deepen and China continues to slow.
The size of the fall was shown in figures released yesterday by ABARE, the Federal Government’s resource and commodity adviser.
It estimated Australia’s commodity export earnings are forecast fall to $192 billion in 2008-09, down from the September forecast of $214 billion.
“While world prices for many commodities have declined markedly over the past few months, a significant depreciation of the Australian dollar, if sustained, is expected to provide some support for commodity export earnings,” ABARE head, Phillip Glyde said in a statement on the forecasts.
It’s no wonder we are looking at a 5%-plus drop in our terms of trade next year, which will mean a drop in national income, which will in turn mean a drop in our standard of living as our foreign debt rises and the interest burden grows.
Much of the increase forecast will flow from a continuation of high iron ore and coal prices until the end of next March on exports to China, Taiwan, Japan and South Korea.
From April 1 prices and volumes will fall and even the impact of the weaker dollar won’t say us from a very sharp fall in the final three months of the 2009 year and then lower earnings throughout the 2009-10 financial year.
The looming slowdown locally will help cut imports, and other exports of manufactured goods will fall because offshore demand is falling. Even tourism, which should really get a boost from the lower dollar, won’t do as well because of the recession in Europe, Japan, the US, New Zealand the slowdown in China.
With the budget surplus being run down to maintain demand in the economy, there’s every chance the current account could worsen sharply in the closing months of the financial year, putting more pressure on the dollar.
The main driver will be the fall in the value of Australia’s minerals and energy exports They are now forecast to be around $159 billion in 2008-09, a downward revision from the $180 billion forecast in September.
ABARE pointed out that this "updated forecast of minerals and energy export earnings still represents a rise of 37 per cent on the previous year." The September forecast had that up 53%.
"For energy commodities, export earnings are forecast to increase by 77 per cent to $80.8 billion in 2008-09. That was forecast to be up 98% in September.
For metals and other minerals, export earnings are forecast to be $78.3 billion, an increase of 11 per cent on the previous year." (A 25% rise was forecast in September).
Farm export earnings are forecast to improve 7% to $29.4 billion in the year to June 2009 as the wheat and other grain crops recover from two years of drought.
But even that is down on the 10% rise to $30 billion, forecast in September by ABARE because of lower world commodity prices. 2008-09.
ABARE said it still expects higher export earnings from shipments of wheat, barley, canola, pulses, sorghum, sugar and live cattle.
ABARE said crop export earnings are forecast to increase by 18.3 per cent, to $15.4 billion in 2008-09. In contrast, export earnings from livestock and livestock products are forecast to decline in 2008-09 by 3.3 per cent to around $14 billion.
“The main adverse effect of the global financial crisis has been the sharply lower world prices for minerals and energy commodities,” said Mr Glyde said in the statement.
He noted there have been reports of contract defaults, some mine closures, production cutbacks and requests from some overseas buyers to delay shipments for some commodities because of the significant changes to the global economic outlook.
“Although there is still a chance that more shipments may be delayed or cancelled, it is too early to make a firm assessment at this stage,” Mr Glyde concluded.
ABARE said it was basing its forecasts on the following:
The global financial crisis is expected to weaken world economic growth significantly in the short term. World economic growth is assumed to average 2.5 per cent in 2009, compared with an estimated rate of 3.7 per cent in 2008 and 5 per cent in 2007.
• Economic activity is assumed to contract in a number of OECD countries in the next few quarters, before a gradual recovery in late 2009.
• Adverse impacts on the emerging economies are likely to be less significant. Economic growth in China and India is assumed to moderate but remain at relatively high levels.
• The Australian exchange rate is assumed to average US70c in 2008- 09.
Against this backdrop, world economic growth is not expected to return to levels more consistent with potential until well into 2010.
The actual pace of economic re
