Australia's export outlook
Resources, services and agricultural exports all recorded double-digit growth in 2018, with resources contributing to the lion share of Australia’s export growth (Chart). But the Department of Industry expects energy and resource export earnings to fall 1.5% p.a. in 2019, led by declines in iron ore (↓8%), thermal (↓15%) and metallurgical coal (↓14%). While export volumes are forecast to rise modestly, lower prices will result from new low-cost supply and weaker demand. LNG is the exception with receipts expected to grow 16% in 2019 driven by both stronger volumes and prices.
Services exports rose 9% p.a. in the year to October, led by tourism and education. These trends should carry-over into 2019, with demand driven by robust household income growth in EMs. The Department of Agriculture and Water Resources expects agricultural exports will decline 7% in FY19 owing to poor growing conditions from the drought. Agriculture exports are down 2% p.a. in the year to October, suggesting exports in the first half of 2019 will fall further.
The outlook for manufacturing exports is less clear as uncertainties from the ongoing US-China trade stoush could have negative effects on regional supply chains. But steady global growth and the weak AUD pose upside. Markets currently expect the AUD will remain around US$0.72, though greater investor risk aversion, lower than expected commodity prices and higher interest rates in other advanced economies could put downward pressure on the AUD through 2019. Market pricing suggests that there is a 30% probability that the AUD will either fall below US$0.65 or rise above US$0.80 in 2019.