The Office of the Chief Economist has projected that Australia’s resource export earnings will continue to grow amid current global market volatility.

The Resource and Energy Quarterly from the Office of the Chief Economist anticipates that resource exports will rise to a record $282 billion in 2019-2020, backed by an increase in gold export earnings and depreciation of the Australian dollar.

David Turvey, Acting Division Head Department of Industry, Innovation and Science, reported that Australian resource exports appear likely to hold up in 2019-20, in the face of volatile commodity markets.

“Our new projection of AU$282 billion in exports in 2019-20 has shaved just AU$3 billion from our June 2019 Resources and Energy Quarterly projection,” commented Mr Turvey.

“Export earnings in 2020-21 have been revised down by a similar amount, to AU$258 billion. The decline in earnings in 2020-21 will mainly reflect the impact of the steady return of Brazilian iron ore production to normal, following the fallout from the Brumadinho mine tailings dam collapse.”

According to the report, an increase in gold export earnings and the depreciation of the Australian dollar will help counter the impact of escalating US-China trade tensions.

Mr Turvey sees that while the trade tensions have led to a weaker outlook for Australia’s base metal and energy exports, as the world’s second largest gold producer, Australia is benefitting from investors’ flight to safety.

“Our gold earnings are set to surge by one third to AU$25 billion in 2019-20. More generally, as US-China trade tensions see US dollar commodity prices fall, the Australian dollar has also dropped, holding up Australian resource and energy commodity producers’ returns.

While the IMF is forecasting world GDP growth to hold up well over the next year, the outlook for world industrial production has deteriorated, taking with it some of the buoyancy of resource and energy commodities in recent years.”

The data in this edition of the quarterly shows that global cutbacks in manufacturing production are already flowing through into commodity markets. The importance of China’s burgeoning middle class means that any further decline in Chinese economic growth could have even more significant effects on global supply chains for a range of technology and other products.

“Thus far, problems within the global economy remain somewhat quarantined. The usual catalysts for global downturns – miscalculations with interest rates, financial freeze-ups, abrupt collapses in investment – have not yet materialised,” said Mr Turvey.

“But uncertainty is growing. Central banks and governments still have firepower to deploy to prevent a major slowdown, though perhaps less ammunition than was available 10 years ago.

“Oil prices have declined in recent months, building on the longer-term price impact of higher US supply. Technological investment in electric vehicles and energy storage is improving the prospects for several emerging commodities, offsetting the impact of trade concerns. Nickel is set to jump in the rankings of significant export earners, as a direct result of this phenomenon. More established commodities, such as steel and aluminium, are set to benefit from some carefully chosen Chinese stimulus measures.”

The latest data suggest that mining investment in Australia has turned the corner. For the first time in six years, mining companies are planning to increase their annual spend on building new mines/wells and on expanding and replacing their fleet of plant, machinery and equipment.

This edition includes a special topic on mining productivity. The research suggests that productivity in major parts of the Australian mining sector could be significantly stronger than traditional measures suggest. In globally uncertain times, the factors under our control – such as productivity – become increasingly important.

The Resources and Energy Quarterly contains the Office of the Chief Economist’s forecasts for the value, volume and price of Australia’s major resources and energy commodity exports. Underpinning the forecasts contained in Resources and Energy Quarterly is the Office of the Chief Economist’s outlook for global commodity prices, demand and supply. The forecasts for Australia’s commodity exporters are reconciled with this global context. The global environment in which Australia’s producers compete can change rapidly.

Each edition of Resources and Energy Quarterly factors in these changes, and makes appropriate alterations to the outlook, estimating the impact on Australian producers and the value of their exports.

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