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Australia’s first budget surplus in 15 years could prove short-lived, with the value of the country’s commodity exports expected to fall by more than $100 billion.
Key points:
Australian resource and energy export revenues expected to fall by more than $100 billion in value
Sluggish global growth, weighed down by Chinese economic concerns, blamed for fall
Economist warns slowdown could wipe out much of Australia’s budget surplus
From a peak of $467 billion in the 12 months to the end of June, the value of Australia’s resources and energy exports is expected to fall to $400 billion this year and $352 billion next year.
The federal government’s forecast, due to be published today, is attributed to a “return to normal” in the prices of many raw materials amid sluggish global economic growth.
One economist warned it could give headaches to Federal Treasurer Jim Chalmers, who raked in a $22 billion surplus last financial year, largely thanks to record export earnings.
Market Economics chief executive Stephen Koukoulas said exports were “out of water”.
“And that’s because our largest trading partner – China – is experiencing its own economic concerns and experiencing an economic slowdown,” he said.
China’s real estate sector is a huge economic engine, and it’s in trouble.(Reuters: Tingshu Wang)
Record profits down
In its latest quarterly overview of Australia’s export performance, the Department of Industry, Science and Resources noted that prices for most of the country’s resource exports were falling.
Iron ore – Australia’s most valuable export – is expected to fall in value to $99 billion in 2024-25, from $124 billion in the most recent financial year.
Revenue from liquefied natural gas exports is expected to fall from a record $93 billion in 2022-23 to $71 billion this fiscal year and $63 billion by 2024-25.
The same was true for thermal and metallurgical coal.
Even exports of lithium, a growing source of Australia’s mineral wealth, are expected to fall in value, from $20 billion in 2022-23 to $16 billion next financial year.
Resources Minister Madeleine King said the value of Australia’s resources exports was coming back down to earth, following Russia’s invasion of Ukraine and years of supply chain disruptions that put the prices of many commodities into orbit.
“While overall export revenues decline from record levels, Australia’s resource and energy exports remain strong and continue to support Australia’s economic well-being,” she said.
“The road to net zero is paved by Australia’s essential minerals,” says Madeleine King.(ABC News: Cason Ho)
“Australia remains a reliable and stable supplier of resources and energy to our export customers.
“We are working to create investments, partnerships and supply chains for our critical minerals sector, which will help the world meet its emissions reduction commitments.”
Mr Koukoulas said falling export values were likely to put pressure on Australia’s bottom line.
He said high commodity prices had supported Australia’s surprisingly large budget surplus for 2022-23 by inflating corporate profits taxes and payroll tax revenues.
Good luck, “starting to fade”
However, Mr Koukoulas said a $100 billion drop in export earnings would typically translate into a revenue loss for the federal government of $10 billion to $15 billion, erasing much of the surplus recorded for the last financial year.
“It will create a hole in Australia’s revenue, in Australia’s GDP growth and that will obviously have implications for the federal budget,” Mr Koukoulas said.
“For Jim Chalmers and the budget and this very pleasant surprise we had of a $22 billion budget surplus…most of that surplus was due to surprisingly high commodity prices.
“And if that is no longer there and if it is indeed a reserve, then of course the budget will be more difficult to develop.
“They have a little bit of luck and a little bit of good management with the budget situation in 2022-23.
“But that chance might start to fade.”
Economist Stephen Koukoulas believes the fall in the value of exports will cause a hole in Australia’s budget.(ABC News: Adam Kennedy)
According to Koukoulas, falling export revenues also risk weighing on any further interest rate hikes this year.
The Reserve Bank of Australia’s board is due to meet today and is expected to keep rates unchanged at 4.1 per cent.
However, markets are pricing in a much greater likelihood of a rate hike at the November meeting on Melbourne Cup day.
Declines weigh on rate increases
Mr Koukoulas said that although inflation rose slightly again in August, much of that increase was due to soaring fuel prices and the RBA was likely to place greater emphasis on raising the rate. unemployment.
“My money is sitting on unchanged rates in October, November and even December if I dare go that far,” he said.
“Simply because the economy is slowing down.”
A remarkable recent success: even Australian lithium exports are not immune to a slowdown.(ABC News: Tristan Hooft)
Despite the slowdown, Ms King said global demand for Australia’s essential minerals would continue to grow as countries sought to decarbonize their energy systems.
“During my visit to Europe and the UK last week, I met with government and industry leaders seeking access to Australia’s critical minerals and rare earth elements,” Ms King said.
“Demand for Australian minerals is growing as the world works to develop the technology needed for decarbonization.
“The road to net zero is paved by Australia’s critical minerals.”