What do lower commodity prices mean for the export profile?
Efic’s latest edition of Export Monitor examines the impacts of falling commodity prices on Australia’s export profile and new opportunities arising from China’s infrastructure push.
‘Service exports, led by tourism and education, have overtaken iron ore to become Australia’s top foreign exchange earner’, says Efic’s senior economist Cassandra Winzenried.
According to Winzenried, ‘while merchandise exports — from mine, farm and factory — remain the cornerstone of Australia’s export earnings, services will increasingly drive performance. This will be supported by rising demand from Asia’s middle class’.
But despite dramatic falls in commodity prices most Australian iron ore production remains profitable — and miners continue to expand capacity.
‘Subdued prices should lead to further depreciation of the AUD and encourage a more diversified export profile’ says Winzenried. ‘Indeed, Efic research suggests agricultural exporters will be the largest winners of a weaker exchange rate.’
‘The homogeneity of agricultural exports and stiff competition from Brazil, the US and Europe mean the exchange rate is important in maintaining farm competiveness’, says Winzenried.
‘Our model suggests a 10% fall in the AUD could lift agricultural export volumes 7%.’
Also likely to create export opportunities is Australia’s membership in the new Beijing-based Asian Infrastructure Investment Bank.
‘The AIIB will have the capacity to put a sizeable dent in Asia’s infrastructure deficit’, says Winzenried.’ ‘The Bank’s success will boost regional economic growth and demand for Australian exports via multiple channels’, she added.
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Photo credit: © Morag MacKinnon / REUTERS / PICTURE MEDIA