Think of Australian exports and chances are you’ll envisage a gargantuan dumper truck the size of a small house carting iron ore away from the lunar landscape of a vast open-cast mine.
And not without reason. Iron ore has been Australia’s biggest export for decades – as at December 2015, it was responsible for 25% of world production.
Just under 30% of the world’s bauxite – the raw material from which aluminium is made – came from Australia, too; as did 24% of global production of industrial diamonds. It is the world’s second biggest exporter of liquefied natural gas.
Its red earth is rich in other metals, too – lead, manganese, gold and silver.
In 2016, 43% of Australia’s exports consisted of minerals and fuels such as coal, oil and natural gas – and the figure has stood at more than 40% since 2008. Of the remainder, manufacturing accounted for 13%, food 12%, and services 22%.
It’s not hard to see that the country’s economy is perhaps dangerously weighted towards its wealth of raw materials. Demand for metals such as iron and aluminium is cyclical and tied to consumer demand in countries across the globe.
Economists used to say that if America sneezed, the rest of the world caught a cold. For Australia, it’s China they watch for the first sign of a sniffle.
In 2016 China accounted for 28% of Australian exports worth A$93bn (£52.6bn) – predominantly raw materials. This was followed by Japan at 12%, the US at 6.3%, South Korea at 6.1% and the UK at 4.5%.
The rankings of the four top export markets were unchanged from 2015, although the UK did replace India for the fifth spot, mainly due to a huge spike in gold exports to Britain.
In dollar terms, China accounted for the biggest rise in Australian exports. After peaking at 29% of exports in 2013 they had fallen back slightly, but started to recover strongly from 2014 on, with major increases in iron ore and coal, but also solid growth in services.
In its November monetary policy statement, the Reserve Bank of Australia (RBA) warned that while growth in China continues to be stronger than expected, cuts in steel production have been introduced to deal with pollution.
“This might reduce Chinese demand for iron ore and coking coal, at least temporarily,” it said. “Iron ore prices have fallen in recent months partly in anticipation of this.”
Interest rate hold
In the longer term, the RBA says Chinese growth, currently 6.6%, is likely to slow in coming years as the working-age population declines, and the state is less likely to use policy stimulus to maintain growth at current rates.
Despite these clouds on the horizon, the RBA’s board meeting on 5 November 2017 confirmed GDP growth at around its trend rate of 3% in the September quarter, and said it is forecast to remain at that rate “over the next few years”.
The RBA board left Australia’s interest rate unchanged at 1.5%.
The latest data (September 2017) from the Australian Trade and Investment Commission (Austrade) show that the total number of Australian exporters continues to grow, with a 5% increase (2,454) in exporter numbers in 2015-16.
The increase reflects a jump of more than 2,600 in the number of goods exporters, along with a slight fall in the number of service exporters.
However, Austrade chief economist Mark Thirlwell points out that exporting is still quite a rare activity in Australia, with just 7.6% of businesses selling goods or services into an overseas market in 2015-16.