About the Resources and Energy Quarterly
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. A ‘medium term’ (five year) outlook for Australia’s major resource and energy commodity exports is published in the March quarter edition of the Resources and Energy Quarterly. The June, September and December editions contain a ‘short term’ (two year) outlook.
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.
The combined effect of a weaker exchange rate outlook and persistent strength in the price of some resource and energy commodities — particularly thermal coal and oil, which affects LNG prices — has led us to revise up our resource and energy export forecasts. We now expect Australia’s resources and energy export earnings in 2018–19 to reach a new high of more than a quarter of a trillion dollars.
Strong world demand and some concerns over supply have helped keep the prices of oil and thermal coal relatively high over the past quarter, boosting the prospects for Australian export earnings over the outlook period.
Bulk commodity prices are expected to decline modestly over the outlook period, as global supply of these commodities improves. These price declines will more than offset the impact of growth in export volumes during that period, leading to a modest decline in export earnings in 2019–20. Export earnings should still be well above 2017–18 levels however, reflecting the tightness of resource and energy commodity markets and the benefits of rising Australian commodity production.
International Monetary Fund expectations are for solid global economic growth over the next few years. The US economy continues to grow strongly, helped by tax cuts and still relatively loose monetary conditions. Strong economic growth in emerging and developing economies is also expected to continue, but at a more subdued pace than in recent years, as economic growth in China slows.
There is some risk to the strong outlook for the world economy and thus commodity demand. Escalating trade tensions between the world’s two largest economies — the United States and China — have raised fears that economic growth in China might slow significantly, with flow-on effects for that country’s commodity demand. Indeed, after the forecasts for this publication were finalised, the US announced it would impose tariffs on a further US$200 billion of imported Chinese products. The implications of this announcement for commodity markets will become clearer in coming months, and will be considered in more detail in the December 2018 Resources and Energy Quarterly.
The other main risk to the world economic outlook is that, notwithstanding the recent significant rise in the US dollar, the US economy may soon run in to capacity constraints, sparking a sharper than expected rise in US inflation. This may force the US Federal Reserve to raise interest rates more than expected, and these rate rises could hurt US economic growth and have ripple effects across the rest of the world economy.
The prospect of a rapid rise to prominence of electric vehicles has created a lot of interest in lithium, which was a relatively minor commodity for decades. Electric vehicles require large batteries, and rising sales are expected to create huge markets for battery-grade lithium over the coming years. This edition of the Resources and Energy Quarterly includes a special chapter on lithium, covering its growing global market, new mines opening in Western Australia and the emergence of refining infrastructure that will lift Australia up the supply chain, and future prospects for the lithium industry in Australia. Future editions of the Resources and Energy Quarterly will include a regular lithium chapter, reflecting its growing importance as an Australian mineral export.
Department of Industry, Innovation and Science
Resources and Energy Overview
Australia’s resources and energy export earnings to reach quarter of a trillion dollars in 2018–19.
- Australia’s resources and energy export volumes are expected to show firm growth over the outlook period. While the prices of Australia’s major resource commodities have generally been rising in recent years, prices are expected to decline in 2019–2020, due to lower consumption and rising production.
- Australia’s resource and energy exports are expected to hit a new record high of $252 billion in 2018–19, before falling back to $238 billion in 2019–20.
- While global economic growth, industrial production and manufacturing output have continued to grow strongly so far in 2018, there are some concerning signs for resource and energy commodity producers, particularly with regards to rising global trade tensions.
The global economy is forecast to grow at 3.8-3.9 per cent a year between 2018 and 2020, driven by strong growth in both advanced and emerging economies.
- Advanced economies are expected to continue to expand at slightly above their trend GDP growth rates until 2019, after which growth should decline. Economic growth in emerging and developing economies is expected to be at a more subdued pace than in recent years, as economic growth in China slows.
- The cuts to corporate and personal income taxes in the United Stated are likely to support global economic growth.
- Trade tensions between the US and its major trading partners, the depreciation of the Chinese Yuan, Brexit negotiations between the UK and the EU, and the financial vulnerabilities in Turkey, present potential risks to confidence and global economic growth.