Australia is facing several years of falling commodity export income, rising balance of payments pressures, an increasing international debt burden, and the Federal Government is facing some tough choices if the economy is to emerge from the current slowdown.

The expected sharp fall in export prices for iron ore, coking and thermal coal will add to the pressures already being generated by the slump in prices for other resources, like nickel, zinc, oil, gas and copper.

According to the latest forecast on Australian commodity production and exports from ABARE, export returns are falling this financial year and will 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 days of 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 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.

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.

Farm products for which export earnings are forecast to increase in 2009-10 include wheat, barley, canola, lupins, peas, raw cotton, sugar and lamb.

By 2013-14, mineral and energy commodity exports are projected to be around $138 billion, 15% lower than their exceptionally high value estimated for 2008-09. For metals and other minerals, export earnings in 2013-14 are projected to be around $73 billion, while export earnings for energy commodities in 2013-14 are projected to be worth $64 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 in the period up 2013-14.

2009-10 looks like being the tough year when there will be a shortfall 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). 2010 could be a miserable year to try and do business, hold a job and win a Federal election.

Peter Fray

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