Australia’s export outlook

After a solid 2017 (Chart 5), energy and resource export earnings are forecast to fall 6.4% next year. This will be driven by declines in iron ore, thermal and metallurgical coal receipts. While export volumes are forecast to rise modestly, higher supply from low cost producers will likely exert downward pressure on prices. But adding some upside to the outlook is LNG, with export receipts forecast to rise 21% in 2018.

Agricultural exports are expected fall over 3% in FY18, driven by a 24% fall in wheat export volumes owing to adverse weather conditions. However, other sectors—like beef and veal, wine and cheese—are all expected to perform well.

The outlook for services exports remains robust, with tourism and education set to outperform given stronger household incomes in both advanced and emerging markets. Manufacturing exports should also see upside in 2018 as the solid global outlook spurs demand for goods used in offshore supply chains.

However, services and manufacturing exports are relatively sensitive to changes in the exchange rate. Markets currently expect the AUD will remain around US$0.75, though weaker commodity prices and higher interest rates in other advanced economies could put downward pressure on the AUD through 2018. But there is considerable uncertainty to the AUD outlook with current market pricing suggesting a 30% probability that the AUD will either fall below US$0.65 or rise above US$0.85 in 2018.