Australia is facing the prospect of rising balance of payments problems if forecasts for our vital commodity exports from the key government forecaster are anywhere near right.
In fact we could face half a decade of falling or static commodity export income, rising balance of payments pressures, an increasing international debt burden and some tough choices for the then federal government of the day.
The expected sharp fall in export prices for iron ore, coking and thermal coal, from the start of April will add to the pressures already being generated by the slump in prices for other resources, such as nickel, zinc, oil and gas and copper.
According to the latest forecast on Australian commodity production and exports from Abare, (the Australian Bureau of Agricultural and Resource Economics), export returns will fall sharply this year and continue over the next couple years before steadying, and then rising slowly.
And even if the world recession ends and growth resumes, Australia won’t be earning the same from its mineral and energy commodity exports by 2014 as it did in the halcyon year 2008-09.
Abare forecast a 17% fall in commodity exports income in the 2009-10 financial year, to $162 billion, following an expected 33% rise to $196 billion for the 2008-09 financial year.
The current year forecast has been revised down by 8% from the estimate for the current year of $214 billion in last September’s edition of the Commodity outlook.
Abare said the expected fall in the value of total commodity exports mainly reflects a forecast decline of 22% in export earnings from mineral resources to $126 billion in 2009-10 from $161 billion in 2008-09.
The new estimate for the current year is $19 billion or 10.5% down on the estimate last September of $180 billion.
According to Abare’s latest Commodity outlook the only bright spot is farm export earnings which are forecast to rise in 2008-09 and 2009-10, despite the global financial crisis.
"Farm exports are forecast to increase by 12 per cent to $30.8 billion in 2008-09, before rising further by a further 4 per cent to $32.1 billion in 2009-10.
"This updated forecast for 2008-09 represents an upward revision from the forecast of $29.4 billion," Abare said.
"Farm products for which export earnings are forecast to increase in 2009-10 include wheat, barley, canola, lupins, peas, raw cotton, sugar and lamb."
"For energy and minerals, significantly lower export earnings are forecast in 2009-10 mainly as a result of expected lower contract prices for bulk commodities and weaker prices for base metals and aluminium.
“The value of energy exports is forecast to fall by 34 per cent to $51 billion in 2009-10, largely driven by sharply lower forecast prices for oil and coal,” Abare head, Phillip Glyde said in a statement yesterday.
"For metals and other minerals, export earnings are forecast to decline by 11 per cent to $75 billion in 2009-10. An expected significant fall in prices for Australian iron ore is projected to account for the majority of this decline.
"In fact 2010 will be tough and looks like being the low point, but there won’t be much joy in following years.
"After declining to around $159 billion in 2009-10 in real terms, the value of Australian commodity exports is projected to gradually rise over the remainder of the outlook period to 2013-14.
"Although Australian commodity exports are projected to increase to around $175 billion in 2013-14 (in 2008- 09 dollars), this is still 12 per cent lower than their estimated value in 2008-09."
The bureau predicted earnings from iron ore, Australia’s biggest commodity export, to drop 20% to $27 billion in 2010, while the value of coking coal sales are expected to plunge 42% to $21 billion.
Earnings from thermal coal, used by power stations, cement plants and some steel companies, is forecast to fall 28% to $13 billion and crude oil exports by 26% to $6.8 billion.
That could be a shortfall of $24 billion in 2013-14. Cumulatively we could face a shortfall in commodity price income of well over $140 billion up in 2013-14.
The 2009-10 looks like being the tough year when there will be a shortfall of more than $36 billion from lower export prices and volumes for our commodity exports.
That opens up the prospect for some large current account deficits (even if the domestic recession cuts demand for imports) and for a rapid escalation in our foreign debt (and domestic debt will be rising at the same time).
The ABS said yesterday our foreign debt rose $20 billion in the 4th quarter, to a near record $678 billion at the end of December.
And we got a hint of what was a boom year from the December current account figures yesterday.
It narrowed as imports eased and exports rose. But that looks like being the best we can expect (unless imports really fall with the economy falling into a deep recession.
That was the rising part of the above graph. The fall has been going on since late last year and continued in January, but steadied in February, according to the RBA’s figures.
That was because of the impact of the weaker Australian dollar.
The Bureau of Statistics said the narrowing of the CAD was driven by a significant rise in the trade surplus from $1.4 billion in the September quarter to $4.1 billion in
