Danger Down Under – A Brief Look At Australia’s Trade Flows

Global growth forecasts are falling and the risk of deflation is rising. As a result, countries that are dependent on commodity exports are especially vulnerable. Australia relies on exports to China. If prices fall and China slows down then Australia will be in big trouble.


Unbalanced trade flows…

Australia exports “primary products” and imports “elaborated transformed manufactures” :

Exports & imports by level of processing    If commodity prices continue to fall then so will the value of Australia’s exports.


A China derivative…

China is Australia’s biggest two-way trading partner:

A China derivative

If its economy weakens then Australian trade will suffer.


Reliant on commodities…

The majority of Australia’s exports are “Minerals & Fuels.” :

Exports by sector

Australia’s most important mineral is Iron ore; it made up 22.6% of its exports 2013-14:

Top 5 exports

Moreover, 8 of its top 10 exports are commodities:

Top 25 exports

If the world continues to move towards deflation then Australia’s economy and currency will come under pressure.


Expensive imports…

Australia imports a lot of petroleum:

Top 5 imports

It also imports a lot of elaborate manufactures such as passenger motor vehicles and computers:

Top 25 imports

On one hand, if oil prices continue to fall then Australia should benefit. On the other hand, if its currency continues to depreciate then import prices will increase.


That’s all folks!

Australia’s economy is inextricably linked to commodities and to China. If global debt continues to rise and Chinese demand falls then the “land down under” may enter the #DangerZone.


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