Australia is a major exporter of raw materials to the rest of the world. However, as demand for finished products around the world slows, there is a knock-on effect on the requirements for raw materials, of course. This fact can be seen in the results for Australia’s economic performance in Q2 which was also affected by weak domestic demand for Australian products and services. Data for July show that retail sales slumped by 0.8%; its sharpest decline for 2 years.
Australia’s Q2 growth came in at an annualised rate of 3.7% which compares to a figure of 4.3% for Q2 2011. The figure represented a 0.6% expansion of the economy with respect to the Q1 figure – so it compares favourably with performance across the EU. The problems of the Euro will also have had an effect on the Australian economy: in January 2009, a Euro would by more than two Australian dollars – at the depths of the most recent round of the Euro sovereign debt crisis, it was buying just 1.1639 AUD. The Euro has rallied in recent weeks and currently is buying 1.2267 AUD, but that’s still 8% less than a year ago.
Australia’s raw material exports will continue to suffer until there is an upturn in the global economy which boosts demand for them. The problem has been exacerbated by declines in the prices for such commodities (due to weaker demand); for instance the price of iron ore has seen a 30% fall over the past two months. Since Australia accounts for almost a third of iron ore exports (and more than 20% of this is imported by Europe), the price weakness has also had a knock-on effect of expansion plans at some Australian mines which in turn affects investment opportunities and construction within the sector.