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Australia — Resources exports resilient amid difficult external backdrop

Australia’s resources and energy export earnings are forecast to fall 10% in 2020-21 from a peak of $293 billion in 2019-20 (Chart). Still, export earnings are projected to remain at historically high levels; almost 50% higher in real terms than earned during the 2008-09 GFC. Commodities will again buffer the Australian economy against external headwinds that will weigh on services exports in coming years. Strong commodity exports have also supported the Australian dollar, which will weigh disproportionately on the competitiveness of non-resources exporters and add to the challenge of export diversification.

Iron ore exports are proving particularly resilient, reaching an estimated record-high of $103 billion in 2019-20. COVID-19 is creating supply issues in Brazil, while demand, particularly from China, remains robust. Reflecting this, annual throughput from the Pilbara Ports Authority reached a record-high in June 2020. China’s focus on infrastructure projects will support future demand. Beijing’s recently announced fiscal stimulus of CNY3.75 trillion (about US$540 billion, or 4% of 2019 GDP) is similar to the CNY4 trillion stimulus for infrastructure spending during the GFC. However, it will involve more spending on “new” infrastructure projects that are less steel-intensive, such as 5G and next-generation information networks. Iron ore export earnings are expected to soften to about $80 billion by 2021-22. Gold exports have also fared well—expected to hit a record $32 billion in 2020-21—as investors increase demand for safe haven assets amid global woes.

However, the COVID-19 pandemic has resulted in sharp falls for other resources, notably energy. Weaker LNG demand in industrial and transport sectors has exacerbated the global oversupply, denting prices. Export volumes are likely to remain broadly flat (at record-high levels) in coming years, given Australia’s LNG capacity expansion has come to an end. Coal exports are also projected to continue to decline from recent stable highs, largely reflecting lower global demand and prices. Imports from India—Australia’s largest coal customer—may suffer as lengthening lockdowns hamper industrial activity. Moreover, a significant proportion of Australian thermal coal production is lossmaking at current spot prices, which may curb export volumes.