More unwelcome news for the Australian economy: the boom in exports is now forecast to be well and truly over, thanks to the growing uncertainty in foreign economies, the high value of the Australian dollar and the lingering impact of the drought.
A long list of major export commodities are expected to generate lower returns over the rest of 2007-08, according to the latest update on our commodity export outlook from ABARE, the Australian Bureau of Agricultural and Resource Economics. The news will add to the growing impression that calendar 2008 will see slower growth, possibly slow inflation, but a rise in inflation and a worsening in our trade position.
ABARE now projects commodity export earnings, which have been the best performing part of our export picture, to now only grow by 1% in the year to next June, compared to an earlier forecast of 4%. Earnings from Australia’s commodity exports are forecast to be $140.5 billion in 2007-08, compared with an estimated $139.4 billion in 2006-07: a mere $1.1 billion more.
In September ABARE forecast total commodity exports at $144.7 billion, so there’s been a fall of just $4 billion in the space of three months. ABARE appears not to be making much allowance for a forecast rise in iron ore and coal export income in 2008 contract negotiations which are about to start.
The value of Australia’s minerals and energy exports is forecast to be around 2% higher at $110.2 billion in 2007-08, compared with $107.9 billion in 2006-07. For energy commodities, export earnings are forecast to increase by 7%, from $39.4 billion in 2006-07 to $42.2 billion in 2007-08 as a result of higher earnings from crude oil, LNG, LPG, other petroleum products, thermal coal and uranium.
ABARE forecast that for metals and other minerals, export earnings are forecast to fall by 1% to $67.6 billion in 2007-08.
Coming on top of a contraction in our terms of trade over the June and September quarter, the forecast indicates that the rush of surplus income into Australia from our surging exports of commodities has come to an end.
We have already seen a downturn in exports from mining in particular this year (and especially in the month of October when we had our biggest ever trade deficit), while the drought and the high dollar have also played an important part. Export bottlenecks, infrastructure shortages are all playing a part in not enabling Australia to generate the sort of returns from the commodities boom (and especially China) that appear to be there on paper.
ABARE says the decline in farm export earnings is mainly because of drought-reduced winter grains crop, even though there was a slight upward revision in the size of the wheat, barely and canola harvest now expected. Despite the small increase in wheat, the harvest will still be 50% under the first estimate mid year of a 25 million tonne crop.
Export earnings from grains are forecast to decline by 14%, mainly because of a sharp fall in stocks from the previous year, meaning we have less wheat, barley and canola available, thereby cutting exports.
ABARE said its mineral energy exports forecasts are slightly less than it predicted in September because of the negative effect on earnings of the Australian dollar and some weakening in metals prices.