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Danger Down Under — A Brief Look At Australia's Trade Flows

Submitted by Shane Obata of Triggers

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” :

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:

 

If its economy weakens then Australian trade will suffer.

Reliant on commodities…

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

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

Moreover, 8 of its top 10 exports are commodities:

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:

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

 

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.