abare.gov.au - Australian commodities – December quarter . volume 15 . number 4 2008

Economic overview

Marina Kim and Jammie Penm

The global financial crisis is expected to weaken world economic growth significantly in the short term. World economic growth is assumed to average 2.5 per cent in 2009, compared with an estimated r ate of 3.7 per cent in 2008 and 5 per cent in 2007.

Economic activity is assumed to contract in a number of OECD countries in the next few quarters, before a gradual recovery in late 2009.

Adverse impacts on the emerging economies are likely to be less significant. Economic growth in China and India is assumed to moderate but remain at relatively high levels.

The Australian exchange rate is assumed to average US70c in 2008-09. An assumed lower Australian dollar is expected to provide some support for Australia’s commodity exports.

The global economy

Global financial crisis has intensified

The world economy is now entering a major downturn in the face of significant adverse developments in the global financial markets. Against a background of exceptional uncertainty, prospects for world economic growth in the short term have been revised down markedly and the outlook is subject to considerable downside risks.

Reflecting the adverse impact of the global financial crisis, a number of OECD countries are expected to go through a period of economic contraction. In response to subdued growth prospects, the authorities in the United States, western Europe and other OECD economies have implemented substantial monetary and fiscal policy measures aimed at supporting economic activity, stabilising markets, and bolstering consumer and business confidence.

For example, in early October 2008 the United States enacted legislation to set up a US$700 billion fund to purchase troubled mortgage related assets from banks. In mid-October 2008, the Australian Government announced a $10.4 billion Economic Security Strategy to support the Australian economy in the face of the global financial crisis. Central banks across the OECD region have also lowered their benchmark interest rates and provided commercial banks with greater access to short-term funding in order to broaden their lending capacity.

The emerging economies are not decoupled from the current economic downturn. Moreover, recent trade and business indicators are signalling weakening economic growth. Countries which have strong trade links with the United States and western Europe are particularly vulnerable to the spillover effects of sharply weaker economic activity in the OECD. Nevertheless, economic growth in the emerging economies, as a group, is expected to hold up significantly better than in their OECD counterparts.

World economic growth to slow markedly

After achieving strong economic growth over the past five years, the global economy is expected to slow down significantly in the short term. World economic growth is assumed to average around 2.5 per cent in 2009, compared with an estimated growth rate of 3.7 per cent in 2008 and 5 per cent in 2007.

In the OECD region, economic activity is assumed to contract by 0.5 per cent in 2009, following growth of 1.1 per cent in 2008 and 2.7 per cent in 2007. In the world’s largest economy, the United States, credit conditions tightened significantly following the recent financial market crisis. Despite the substantial fiscal stimulus implemented earlier in the year, economic indicators released recently suggest the US economy is already in recession.

Economic activity in western Europe has also been adversely affected by tighter credit conditions and the downturn in regional housing markets. Most regional economies are expected to go through a period of economic weakness in the first half of 2009, before a gradual recovery in the latter part of the year.

Growth in the emerging economies is also expected to continue decelerating in the next few quarters, falling well below their growth potential in the first half of 2009, before picking up gradually in the second half of 2009. Export growth during this period will slow markedly and increases in domestic demand are likely to be the main stimulus to overall economic growth. The combination of increased spare capacity and falling commodity prices is expected to dampen inflationary pressures, providing room for monetary and fiscal stimulus to support economic growth.

Risks to the world economic outlook

There are substantial downside risks to the current world economic outlook. The principal downside risk stems from the insolvency of financial institutions in many OECD countries and the likely impact on OECD economic growth. Another major downside risk relates to the spillover effects of economic contraction in the OECD on emerging economies. If economic growth in the emerging markets were to slow sharply, world economic growth, and hence world commodity demand, would be significantly weaker than currently assumed.

Following the events of recent months, concerns remain high about the solvency of financial institutions in many OECD countries, faced with rising losses, tighter funding conditions and dwindling capital base. There is a distinct possibility that weakening economic activity could increase losses in a range of asset holdings, leading to an even lower capital base in the banking sector, and thus prolonging or intensifying the current economic downturn.

In the emerging markets, principal concerns relate to their trade exposure to the OECD region, but domestic demand could also be adversely affected by worsening financial market conditions and declines in asset prices. Countries which have relied on easy access to foreign capital and sharply higher revenues from commodity exports to drive growth in domestic demand could be at particular risk. Conversely, there remains potential for domestic demand in some countries to perform better than currently assumed, for example in China, where the authorities have promptly introduced monetary and fiscal packages.

Key macroeconomic assumptions

World

2006

2007

2008

2009

Economic growth

OECD

3.1

2.7

1.1

– 0.5

United States

2.9

2.2

1.3

– 0.7

Japan

2.4

2.1

0.3

– 0.5

Western Europe

2.8

2.6

0.9

– 0.5

– Germany

2.9

2.5

1.4

– 0.5

– France

2.2

0.8

– 0.4

– United Kingdom

2.9

3.1

0.8

– 0.8

– Italy

1.8

1.5

– 0.2

– 0.6

Korea, Rep. of

5.1

5.0

4.3

1.6

New Zealand

1.5

3.0

0.3

1.0

Developing countries

7.6

7.8

6.2

5.5

– non-OECD Asia

9.1

9.3

7.1

5.9

South East Asia a

5.9

6.3

4.7

3.7

China b

11.6

11.9

9.6

8.0

Chinese Taipei

4.9

5.7

4.0

1.5

India

9.8

9.3

6.3

6.1

– Latin America

5.5

5.6

4.5

2.5

Russian Federation

7.4

8.1

6.8

4.0

Ukraine

7.1

7.3

6.4

3.0

Eastern Europe

6.6

5.6

6.9

4.0

World c

5.1

5.0

3.7

2.5

Industrial production

OECD

3.1

2.5

– 0.9

– 4.4

Inflation

United States

3.2

2.9

4.1

1.4

Interest rates

US prime rate d

8.3

6.6

5.2

4.0

US exchange rates e

Yen/US$

116

118

104

102

Euro/US$

0.79

0.73

0.69

0.80

Australia

2005-06

2006-07

2007-08

2008-09

Economic growth

3.0

3.2

3.7

2.0

Inflation

3.2

2.9

3.4

3.5

Interest rates g

6.6

6.9

7.6

6.5

Australian exchange rates

US$/A$

0.75

0.78

0.90

0.70

Yen/A$

TWI for A$ h

a Indonesia, Malaysia, the Philippines, Singapore and Thailand. b Excludes Hong Kong. c Weighted using 2007 purchasing-power-parity (PPP) valuation of country GDPs by the IMF. d Commercial bank prime lending rates in the United States. e Average of daily rates. g Large business weighted average variable rate on credit outstanding. h Base: May 1970 = 100. f ABARE assumptions.
Sources:ABARE; ABS; IMF; OECD; RBA.

Prospects for economic recovery

Given the recent financial market developments, it is likely world economic growth will decline markedly in the next few quarters. In preparing this set of commodity forecasts, it is assumed world economic growth will begin to recover in the second half of 2009, with the pace of recovery gradually strengthening toward the end of the year.

An important assumption underlying the expected pattern of world economic growth is that comprehensive stimulus packages introduced by many economies, including the United States, western Europe, China and Australia, will work over time to stabilise financial market conditions and restore consumer and business confidence. Nevertheless, financial markets will remain under pressure in the near term. It will also take considerable time for consumers and businesses to regain confidence and increase their spending and investment expenditure.

Against this backdrop, world economic growth is not expected to return to levels more consistent with potential until well into 2010. The actual pace of economic recovery is likely to depend on a turnaround in housing cycles in the United States and other OECD countries, the rise in consumer and business confidence worldwide and a return of strong investment flows to the emerging markets.

Impact of the global financial crisis on commodities

Concerns about slowing world economic growth in 2009, more favourable prospects for key crops as a result of improved seasonal conditions and increased oil supply have led to a softening in commodity prices since mid-July 2008. In the short term, volatility in commodity prices is likely to continue mainly as a result of increased uncertainty about world economic growth and hence world commodity demand.

Under the assumption of improved seasonal conditions, export earnings for Australian agricultural commodities are not expected to be severely affected in 2008-09. Food consumption in the OECD economies is relatively insensitive to income changes. However, the impact could be more substantial if economic growth in emerging Asia and other developing economies were to slow sharply. In 2007-08, Asia excluding Japan accounted for around 35 per cent of Australian agricultural exports. The United States accounted for 9 per cent, Japan 16 per cent and the European Union 9 per cent.

For mineral and energy commodities, a marked weakening in world economic growth placed significant downward pressure on world prices for aluminium, base metals (copper, lead, nickel and zinc) and energy commodities. In 2008-09, the adverse impact of lower world prices for mineral resources on Australian export earnings is expected to be offset, at least partially, by the large increases in negotiated contract prices which were achieved for bulk commodities earlier in the year. Contract negotiations for the Japanese financial year 2008 (April-March) resulted in prices for thermal coal, coking coal and iron ore increasing by 125 per cent, 200 per cent and 85 per cent, respectively.

In response to the sharply weaker outlook for world economic growth, the value of the Australian exchange rate has declined significantly over the past few months, especially against the US dollar. The Australian dollar was trading around US66c and TWI 55 in early December 2008, compared with a high of US98c and TWI 74 in mid-2008.
The sharp depreciation of the Australian dollar against the US dollar, if sustained, is expected to provide support for Australia’s commodity export earnings because most export contracts are denominated in US dollars.

World stock markets

52 week high a

early Dec. 2008

change %

OECD

United States

13 780

8 434

–38.8

Japan

16 108

8 021

–50.2

Euro area

4 503

2 327

–48.3

Australia

6 684

3 553

–46.8

East Asia

China

5 771

2 052

–64.4

Korea, Rep. of

1 953

1 028

–47.4

Chinese Taipei

9 310

4 333

–53.5

South East Asia

Indonesia

2 830

1 203

–57.5

Malaysia

1 516

845

–44.2

Philippines

3 745

1 891

–49.5

Singapore

3 571

1 655

–53.7

Thailand

884

391

–55.8

India

20 873

8 904

–57.3

a Highest point between early December 2007 and early December 2008.

Australian exchange rates

mid–July 2008

early Dec-08

change from
mid–July 2008 %

Exchange rates

Australian TWI

54.5

–26.4

$A/US$

0.98

0.66

–32.2

$A/¥en

102.3

61.89

–39.5

$A/€uro

0.61

0.51

–16.4

$A/£Stlng

0.49

0.45

–8.6

$A/Indonesian Rupiah

8 910.30

7 799.88

–12.5

$A/Malaysian Ringgit

3.15

2.39

–24.1

$A/Philippine Peso

44.45

32.09

–27.8

$A/$Singapore

1.32

–24.4

$A/Thai Baht

32.31

23.07

–28.6

Australia’s major export markets

Economic growth in the United States

The United States has been at the centre of the intensifying global financial crisis and economic activity is now slowing fast. For example, US gross domestic product, in real terms, is estimated to have contracted at an annualised rate of 0.5 per cent in the September quarter 2008, compared with growth of 2.8 per cent in the previous quarter. Weakening consumer spending and declining business and residential investment were the main factors leading to the economic contraction.

Since mid-2007, declining residential investment has been a major drag on the general economy. Based on the indicators released recently, housing activity and prices are still falling and foreclosures are increasing. This suggests the correction in the US housing market is continuing.

Falling house prices and sharp declines in stock market valuations are contributing to a significant fall in household wealth. At the same time, the unemployment rate was at a 15-year high of 6.7 per cent in November 2008. Higher unemployment and lower household wealth have the potential to significantly weaken consumer spending in the short term.

With economic contraction now in place, the key questions are:

How deep will the downturn be?

When will a recovery get under way?

How strong will it be?

The main determinants of the US short-term economic outlook will be the effectiveness of government policy initiatives in stabilising financial market conditions and restoring credit flows in the economy, as well as the behaviour of US households in the face of declining wealth.

It is likely considerable time will be required before losses in the US banking sector are fully recognised, banks are recapitalised and market confidence is regained. Tight lending conditions are already having an adverse effect on economic activity and credit availability is expected to remain constrained, at least over the next few months. The impact is likely to be severe for both households and firms.

In preparing this set of commodity forecasts, the US economy is assumed to contract by 0.7 per cent in 2009, after growing by 1.3 per cent in 2008.

Underpinning these growth assumptions is an expectation economic activity in the United States will remain weak in the first half of 2009, before a gradual recovery starts in the second half of the year. The economy is assumed to return to a growth rate more consistent with its potential by 2010.

Risks to the current US economic outlook are mainly on the downside. Of particular concern is that the ‘credit crunch’ could affect general economic activity more severely than currently assumed. There is also a distinct possibility the housing downturn could extend into 2010, meaning an economic recovery could eventuate later than currently assumed and the pace of economic recovery could be weaker.

Given the recent significant decline in international oil prices and the expected weakening in economic activity, inflationary pressures in the United States should moderate in the near term. Easing inflationary pressures are expected to provide room for monetary policy to remain accommodating. The federal funds rate was at 1 per cent in early December 2008.

Economic performance in China and emerging Asia

Economic activity in emerging Asia began to decline in mid-2008, while more weakness has emerged lately in response to slowing demand from the OECD economies.
In China, real gross domestic product grew at a year on year rate of 9 per cent in the September quarter 2008, compared with 10.1 per cent in the June quarter and 10.6 per cent in the March quarter. Slowing exports contributed to the weaker economic growth in the September quarter, despite continued robust growth in business investment spending and higher private consumption expenditure.

In India, the economy expanded at an annual rate of 7.6 per cent in the September quarter 2008, compared with growth of 7.9 per cent in the June quarter and 8.8 per cent in the March quarter. In an attempt to strengthen confidence in financial markets, the Indian authorities stepped up measures to boost liquidity in the banking sector. Like many central banks around the world, the Reserve Bank of India has cut its benchmark interest rate by 250 basis points since October 2008 to be 6.5 per cent in early December 2008. To support the economy, the Indian Government has also recently announced a 3 trillion rupee (US$ 60 billion) spending plan, equivalent to 5 per cent of gross domestic product, which is expected to be allocated by March 2009.

In the newly industrialised Asian economies and Association of South East Asian Nations (ASEAN) economies, activity has also been decelerating. Domestic demand has softened, while declining profit margins and weakening demand have prompted firms to scale back their investment plans.

Looking forward, growth in non-OECD Asia (excluding Japan and the Republic of Korea) is projected to moderate to 5.9 per cent in 2009 from an estimated growth rate of 7.1 per cent in 2008. Weaker external demand is likely to weigh on exports, but in some cases the impact may be mitigated to some extent by expansionary macroeconomic policies. Investment is also expected to moderate further, mainly because of deteriorating export prospects. Growth in consumption could also ease as a result of weakening confidence.

There is a considerable downside risk to the regional economic outlook. The main concern is a sharper than anticipated global economic slowdown could weigh further on regional economic activity. On the upside, domestic demand may prove more resilient than currently assumed, with falling commodity prices providing support to manufacturing activity.

Growth in China to support regional activity

Over the past decade, strong economic growth in China has underpinned economic activity in its neighbouring countries. Looking forward, economic performance in China will continue to be an important factor in supporting regional economic growth.

China’s economy has a large traded sector compared with other major world economies. In 2007, exports and imports accounted for around 41 per cent and 31 per cent of gross domestic product, respectively. Net exports (exports minus imports) accounted for around 10 per cent of gross domestic product in the same year.

Looking ahead, economic growth in China is assumed to ease in 2009, but remain relatively strong. Partial indicators released recently support this assessment. While growth in industrial production slowed to a year on year rate of 8.2 per cent in October 2008, from an average of around 18 per cent in 2007, growth in retail sales and fixed asset investment continued to be solid. Urban disposable incomes rose year on year by 14.7 per cent in the first nine months of 2008 and rural incomes increased year on year by 19.6 per cent over the same period.

In preparing this set of commodity forecasts, economic growth in China is assumed to average 8.0 per cent in 2009, following estimated growth of 9.6 per cent in 2008.

The Chinese authorities have indicated their intention to stimulate economic growth and employment using a range of fiscal policy measures such as increased infrastructure spending and tax cuts for exporters. In early November 2008, the Chinese Government announced a fiscal stimulus package totalling 4 trillion yuan (or US$586 billion). The recent easing in inflationary pressures, from a peak of 8.7 per cent in February 2008 to 2.4 per cent in November 2008, has also provided room for monetary stimulus. Since September 2008, the Bank of China has reduced its benchmark interest rate by 189 basis points to be 5.58 per cent in early December 2008.

Economic prospects for Japan

Despite robust economic growth achieved in early 2008, the Japanese economy contracted in mid-2008, with real gross domestic product declining at an annualised rate of 1.8 per cent in the September quarter 2008, after falling by 3.7 per cent in the previous quarter. Lower private consumption expenditure and declining business spending and net exports were the main contributing factors to the economic contraction.

Partial indicators released recently suggest economic activity in Japan is likely to remain subdued in the near term, as slowing external demand, especially from the United States and western Europe, and weakening profit expectations weigh on business confidence and capital investment plans. Falling equity market valuations and weakening wage growth prospects are also expected adversely to affect consumer confidence and spending.

Against this backdrop, Japan’s economy is assumed to contract by 0.5 per cent in 2009, after achieving growth of 0.3 per cent in 2008.

Given the subdued economic outlook, monetary policy in Japan is likely to remain accommodating. The Bank of Japan lowered its benchmark lending rate by 0.2 percentage points to 0.3 per cent in late October 2008. In the same month, the Japanese Government announced a fiscal stimulus package of ¥5 trillion (or US$52 billion) in an effort to support activity in the economy.

Western Europe

Western Europe has been hard hit by the global financial crisis, with regional economic activity contracting by 0.2 per cent in the September quarter 2008, following a similar decline in the June quarter. The deceleration in economic activity in mid-2008 mainly reflects reduced domestic demand as a result of deepening financial market turmoil, ongoing housing market adjustments in several regional economies and a substantial slowdown in exports.

In this challenging environment, the European Central Bank and a number of regional governments such as those in Belgium, France, Germany, Luxembourg, the Netherlands and the United Kingdom have undertaken a range of policy measures to provide broad access to liquidity and funding to financial institutions. In late November 2008, the European Commission announced a new 200 billion euro (US$259 billion) stimulus proposal, or around 1.5 per cent of EU GDP, to limit the effect of the global financial crisis on the regional economies.

After a significant increase in the first half of 2008, inflationary pressures in the region are expected to ease as economic activity weakens. This should provide the European Central Bank with scope to maintain an accommodating monetary policy stance. In an attempt to support economic activity, the European Central Bank has lowered its benchmark interest rate by 125 basis points since October 2008 to be 2.5 per cent in early December 2008.

Weakening prospects for domestic demand and rapidly declining financial market evaluations are expected to continue affecting regional economic activity in the short term. Economic activity in western Europe is assumed to contract by 0.5 per cent in 2009, following average growth of 0.9 per cent in 2008.

Economic prospects in Australia

After a period of strong economic expansion, growth in the Australian economy moderated in mid-2008. Real gross domestic product rose by 0.1 per cent in the September quarter 2008, following growth of 0.4 per cent in the June quarter 2008 and 0.6 per cent in the March quarter 2008. The slowdown in economic growth was largely driven by continued weaker domestic demand, particularly household consumption. Private business investment made a positive contribution to economic growth, although its rate of expansion eased in the September quarter 2008 compared with the June and March quarters.

Partial indicators released recently suggest domestic demand could remain subdued in the coming quarters in response to the weakening prospects for world economic growth. For example, in November 2008, manufacturing activity declined for the sixth consecutive month as companies reduced production, reflecting lower consumer and business confidence. On the upside, overall growth in the economy is expected to be supported by lower interest rates and exchange rate, as well as expansionary fiscal and monetary policies.

Although untimely November rainfall in all states, except South Australia, has interrupted the harvesting of winter crops, the volume of crop production in Australia is forecast to increase by 13.9 per cent in 2008-09, while livestock production is forecast to fall slightly by 1.7 per cent. In aggregate, the volume of farm production is forecast to increase by 5.9 per cent in 2008-09. For minerals and energy, the volume of mine production is forecast to increase by 2.9 per cent in 2008-09.

Economic growth in Australia is assumed to average 2 per cent in 2008-09, compared with growth of 3.7 per cent in 2007-08.

Inflation

Despite the moderation in economic growth, Australia’s inflation rate has remained relatively high in recent months. The consumer price index rose by 1.2 per cent in the September quarter 2008, after a 1.5 per cent increase in the June quarter 2008. On an annual basis, Australia’s consumer price index was 5 per cent higher in the September quarter 2008. Price increases in housing, food, and financial and insurance services were among the largest contributors to the recent rise in inflation, which were partially offset by price decreases in child care, pharmaceuticals, and audiovisual and computing equipment.

Weakening economic growth, especially domestic demand, is expected to place downward pressure on the inflation rate in coming quarters. For 2008-09 as a whole, Australia’s inflation rate is assumed to average around 3.5 per cent, compared with 3.4 per cent in 2007-08.

Australian exchange rate

Over the past few months, the Australian dollar has depreciated sharply both against the US dollar and on a trade weighted basis. The Australian dollar was trading around US66c and TWI 55 in early December 2008, compared with a recent high of around US98c and TWI 74 in mid-July 2008. In the first half of 2008-09, the Australian dollar is estimated to have averaged around US79c and TWI 63.

Concerns about the adverse impact of the recent financial market turmoil on world economic growth, and hence world commodity demand, have been a key factor contributing to the recent depreciation of the Australian dollar.

Another factor which has placed significant downward pressure on the Australian dollar is financial market expectations of reductions in Australian interest rates. The Reserve Bank of Australia has lowered its benchmark interest rate by 300 basis points to 4.25 per cent since early September 2008. Given the weaker economic growth outlook and an expected easing in inflationary pressures, Australia’s prime lending rates are assumed to decline from an average of 7.6 per cent in 2007-08 to 6.5 per cent in 2008-09.

Movements in the Australian exchange rate have also been significantly influenced by changes in financial market sentiment, leading to strong volatility in the value of the Australian dollar. For example, the recent fall in the Australian dollar has reflected a significant change in financial market sentiment toward treating the US dollar as a ‘safe haven’. Despite the subdued economic outlook for the United States, the US dollar has risen against most other major currencies. The US dollar was trading around 0.77 euro and 0.68 pound sterling in early December 2008, compared with 0.63 euro and 0.50 pound sterling in mid-July 2008. Against the Japanese yen, the US dollar was trading around ¥93 in early December 2008, compared with ¥105 in mid-July 2008.

Unless there is a rapid improvement in the global financial situation, downward pressure on the Australian dollar is likely to persist in the next few quarters. In preparing this set of commodity forecasts, the Australian dollar is assumed to average US70c and TWI 56 in 2008-09. This compares with an average of US90c and TWI 70 in 2007-08.

A lower Australian dollar, if sustained, will provide some support for Australian export earnings, although it can also place some upward pressure on the cost of imports. Given the considerable uncertainty surrounding the short-term outlook for the Australian dollar, it will be important for primary producers and exporters to manage the risks associated with fluctuations in the Australian exchange rate.

Commodity export prices up in Australian dollar terms

The index of unit export returns for Australian commodities, in aggregate, is forecast to rise by nearly 31 per cent in 2008-09, following an increase of 6 per cent in 2007-08. While world prices for many commodities have declined markedly over the past few months, a significant depreciation of the Australian dollar is expected to provide some support for commodity export prices in Australian dollar terms.

For farm commodities, the index of unit export returns is forecast to remain largely unchanged in 2008-09, after rising by more than 10 per cent in 2007-08.

Unit export returns for Australian mineral and energy commodities are forecast to increase by around 37 per cent in 2008-09, following a rise of 5 per cent in 2007-08.

Unit returns for energy exports are forecast to rise by 71 per cent in 2008-09, compared with an increase of 14 per cent in 2007-08. Unit export returns for metals and other minerals are forecast to increase by 12 per cent in 2008-09, after remaining largely unchanged in 2007-08.

Global financial crisis slows export earnings growth

Earnings from Australia’s commodity exports are forecast to be around $192 billion in 2008-09, compared with an estimated $148 billion in 2007-08 (a rise of 30 per cent). This updated forecast of commodity export earnings is a downward revision from ABARE’s earlier forecast of $214 billion in the September edition of Australian commodities and is largely a result of the recent global financial crisis.

For farm commodities, export earnings are now forecast to be $29.4 billion in 2008-09, an increase of nearly 7 per cent from $27.5 billion in 2007-08, but marginally lower than the $30 billion forecast in September 2008. Agricultural commodities for which export earnings are forecast to be higher in 2008-09 include wheat, beef and veal, barley, sugar, canola, grain sorghum and live cattle.

For forest and fisheries products, export earnings are forecast to be around $3.9 billion in 2008-09, 1.1 per cent higher than earnings in 2007-08.

The value of Australia’s minerals and energy exports is forecast to be around $159 billion in 2008-09, a downward revision from the $180 billion forecast in September 2008. This updated forecast of minerals and energy export earnings still represents a rise of 37 per cent on the previous year.

For energy commodities, export earnings are forecast to increase by 77 per cent to $80.8 billion in 2008-09. For metals and other minerals, export earnings are forecast to be $78.3 billion, an increase of 11 per cent on the previous year.

Because of the significant changes to the global economic outlook, there have been reports of contract defaults, some mine closures, production cutbacks and requests from some overseas buyers to delay shipments for some commodities. Although there remains a possibility more shipments could be delayed or cancelled, it is too early to make a firm assessment.