Australia’s recent export performance

Towards the end of last year we took a detailed look at how Australian exports performed in FY 2014-15. This post updates that earlier analysis to take a preliminary look at developments in calendar year 2015.¹

To begin, it’s worth noting that most of the key trends identified as influencing developments in FY2014-15 also applied through 2015 as a whole. For example, growth in world trade volumes and in industrial production remained soft for much of last year, reflecting a world economy where investment demand and manufacturing production were both relatively weak, and where growth was (and still is) being driven more by consumption and services. This particular pattern of global growth is probably more amenable to developed economies than emerging economies in general, although the Indian economy may be something of an exception to that story.²

Likewise, the downturn in commodity prices was sustained across 2015 and into this year, with the price of iron ore falling from US$67.39/t in January 2015 to US$39.60/t in December 2015. The same time period saw the price of thermal coal slide from US$66.54/t to US$55.85/t.

Still, it’s important to remember that while the prices of some key Australian commodity exports were down last year, resource export volumes were up, as new mining capacity in Australia came on line.

Against a backdrop of falling commodity prices, the Australian dollar depreciated over 2015 as a whole: after starting the year worth US$0.81 on 2 January 2015, the dollar had fallen to US$0.73 by 31 December 2015. Over the same period, the trade-weighted index (TWI) fell from 66.1 to 62.7.³

Subdued wage growth and inflation saw that nominal depreciation deliver a real depreciation and a consequent improvement in relative international competitiveness, with the real effective exchange rate falling from an index value of 93.7 in January 2015 to 88.71 in December the same year.⁴ However, with the value of the dollar tending to stabilise towards the end of the year, the trajectory of the real exchange rate involved a fall to an annual low of 85.44 in September 2015 followed by a period of modest appreciation during the final quarter of 2015.

These cross-currents of falling commodity prices, increasing resource volumes and improving relative competitiveness all influenced the 2015 export numbers. For example, the fall in commodity prices has continued to outpace the increase in volumes, with the result that the overall value of resource exports declined across 2015. That drop pulled down the total value of merchandise exports over the past year. At the same time, however, the value of service exports continued to climb in 2015, helped by a lower dollar and some robust consumer demand in emerging Asia.

A comparison of some of Australia’s key export sectors illustrates the story, with a big decline in the annualised value of iron ore exports over the course of the year, little change in the value of exports of coal, and significant increases in the value of tourism-related services and exports of food and beverages (both of which exceeded the value of coal exports in December on an annualised basis) all visible in the data.⁵

The very different growth stories of iron ore exports on the one hand and exports of tourism-related services on the other provide a striking example of the diverging performance across export categories.

These trends also match developments in the pattern of global growth as described above. In particular, while the value of exports of intermediate goods (dominated by resources in the case of Australia) have fallen markedly, exports of consumption goods and of services are both enjoying robust growth in dollar terms. Exports of capital goods, meanwhile, have seen growth rates decline in 2015 although dollar values are still expanding.

Finally, the direction of Australia’s merchandise exports also reflects the changing global picture. In particular, the slowdown in emerging Asia in general and China in particular (along with the big downturn in commodity prices) is visible in a decline in the annualised value of exports to China, Korea and ASEAN, although exports to India have actually picked up. Meanwhile, with regard to developed markets, exports to the United States have been rising, and more recently there has been a modest recovery in the dollar value of exports to the EU. The value of exports to Japan has fallen, however. Despite all of these shifts in relative market performance, the value of merchandise exports to China continues to dominate our overall export profile.

Source: AusTrade