Resources and Energy Quarterly forecasts large decline in export values

Australia’s economic outlook has darkened, with the value of resource exports set for a staggering fall on the back of a China slowdown.

Australia’s economic outlook looks set to darken over the next two years, with a major forecaster predicting substantial declines in the value of lucrative resource exports.

The latest Resources and Energy quarterly report shows the total value of exports declining to $400bn in 2023-24 from the $467bn recorded in 2022-23, a 14 per cent fall.

The decline will likely continue into 2024-25, with export values pegged to hit $352bn for a total fall of nearly 25 per cent from the 2022-23 peak.

The report, released by the Office of the Chief Economist, credits rising economic uncertainty in China as a key factor in the coming decline.

“Chinese growth has proven slower than hoped in 2023, as cyclical and structural factors weigh on the post-Covid recovery,” the report states.

Chinese commuters grind through heavy traffic. Slowing growth in China is dampening the value of Australian resource exports according to the latest report from the Department of Industry’s Office of the Chief Economist. Picture: Jade GAO / AFP

“The Covid pandemic left households and the private sector in worse shape and confidence has been slow to recover.

“In addition, slowing global growth is weighing on demand for Chinese exports. These cyclical factors are compounded by structural factors such as the increasing share of consumption in Chinese output, slowing urbanisation and population growth.”

Most major commodities are expected to fall, including traditional cash cows like iron ore and coal.

The value of iron ore exports is tipped to fall from the $124bn recorded in 2022-23 to $99bn in 2024-25.

Metallurgical coal, used in the steelmaking process, is predicted to fall from $62bn to $41bn in the same period, while thermal coal, which is burned to generate electricity, will likely move downwards from $66bn to $28bn.

Lithium, a major critical mineral that underpins electric vehicles, is also tipped to fall from $20bn in 2022-23 to $16bn in 2024-25.

While the numbers are falling, Resources Minister Madeleine King cautioned the lower earnings reflected a return to more normal prices following the supply shocks from Russia’s invasion of Ukraine and floods in Australia and Indonesia.

“While overall export revenue is easing from record highs, Australia’s resources and energy exports remain strong and continue to underpin Australia’s economic wellbeing,” Ms King said.

“Australia remains a reliable and stable supplier of resources and energy to our export customers.”

The export values of major commodities like iron ore are tipped to fall out to 2024-25. Picture: Supplied

The report forecasts capital expenditure in the mining sector to remain stable out to 2024-25 after a rise in 2022-23, propelled by a lift in exploration spending.

“Exploration spending is a leading indicator of broader capital investment and recent growth suggests interest is rising in base metals and critical minerals following recent strong price outcomes,” the report states.

“Given the typical lags involved, we could expect capital spending by resource and energy companies to continue to lift over the next few years.”

It also notes a global trend away from fossil fuels continues despite some “regression” in the fallout from the Russia-Ukraine war.

“Global investment continues to surge in all stages of the supply chain of low emission and critical technologies,” the report states.

“Australia appears to be enjoying its share of this investment, especially at the upstream stage.

“We can expect this type of investment to pick up even further in many nations once interest rates start to fall. Lower borrowing costs will raise the net present value of investment projects, dragging some of them over the line.”

Originally published as Resources and Energy Quarterly forecasts large decline in export values