Australia’s export slump quietly dragging down the economy

Australia’s exports have changed from a significant positive to a significant negative in terms of economic growth and national income growth.

This is an issue that has received little coverage in the wider economic community, despite being a key factor behind the stagnation of real income growth and the slowing of per capita GDP growth.

Economic debates in Australia focus on house prices, housing construction, immigration, tax policy, investment in data centers and household spending.

And fair enough.

These are important issues and trends that have a significant impact on the economic conditions in these areas and the long-term well-being of the population.

Much of the economic debate almost ignores or overlooks the alarming decline in export volumes and export earnings, which is putting a major dent in the economy already under pressure from high inflation and cost-of-living restrictions.

In simple terms, value of goods exports declined. For most of 2022, the monthly value of all goods exported was consistently above $50 billion. It reached $55 billion in June 2022. These were record export revenues for Australia at the time.

If we fast forward to the latest data, the value of monthly exports has fallen to around $45 billion in May 2026.

Export revenues for LNG and coal collapsed, and these declines were not offset by growth in other areas.

At the same time, the value of imports is also strong. Recently, the inflow of equipment and machinery has increased imports due to the boom in investments. data centers. This resulted in the international trade balance in goods (the difference in the value of exports and imports) being revealed for the first time in almost a decade.

May’s $3 billion deficit was close to a record and stands in stark contrast to monthly trade surpluses of well over $10 billion each month just a few years ago.

The problem becomes even more serious when looking at the impact of international trade in goods and services on real GDP growth.

This is a story of pain.

Net exports (the difference between export volume and imports of goods and services) have not made a positive contribution to GDP since the December quarter 2023, and even then, net export It contributed a meager 0.1 percent to GDP.

In each quarter since then, a total of two and a half years, the cumulative impact of net exports has shaved 2.1% off GDP growth, or about 1% per year. For example, if net exports had been neutral for the year to March quarter 2026, annual GDP growth would have been a significant 3.5% instead of the 2.5% recorded due to the net exports hit.

Of course, this assumption is complicated by the fact that negative net exports are partly due to the boom in data centres, but it also shows problems with the worsening trade situation.

Policymakers cannot have much influence on international trade in the short term. In fact, the only meaningful impact is to ensure that Australian exporters are as efficient and effective as possible, ensuring that domestic businesses in direct competition with importers (think tourism and wine are two examples) can compete and beat their overseas competition.

What might help solve the problem is adjusting the Australian dollar exchange rate to compensate for the loss of international competitiveness.

On this score, dollar went in the wrong direction. It has gained significant strength over the past few years, both against the US dollar and on a trade-weighted basis.

Some of this strength of the Australian dollar is a function of good economic management. Triple A credit ratings are a magnet for foreign investment flows, and the fiasco in US politics and policy has caused the US dollar to weaken against most major currencies, including the Australian dollar.

This could signal that the Australian dollar is too high at current levels (close to 70 US dollar cents (AU$1.01) and 65 on the trade-weighted index). This rate needs to fall to stimulate the international trade part of the economy.

Since 1983 the Australian dollar has floated freely with little intervention to target its value. As it should be.

The Australian dollar remains vulnerable to a lower hit at some stage. It is impossible to know exactly when and by how much the Australian dollar will fall.

However, this means that sectors of the economy that were hitherto exposed to the international economy will find this difficult and, as a result, will create a drag on economic growth.

Stephen Koukoulas is one of Australia’s most respected economists, the former chief economist of Citibank and senior economic advisor to the Australian Prime Minister. You can follow Stephen on Twitter/X @TheKouk and in Bluesky @thekouk.bsky.social.

Support independent journalism Subscribe to IA.