Fed:Exporters start to feel the heat from global recession

AAP General News (Australia)
04-17-2009
Fed:Exporters start to feel the heat from global recession

By Colin Brinsden, Economics Correspondent

CANBERRA, April 17 AAP - The economy is starting to feel the wrath of the global recession
with export prices declining at their fastest pace in six years, hurting both national
income and economic growth.

New data shows the nation's terms of trade - the ratio between export prices and import
prices - is contracting, reversing the good times from the resources boom which brought
in billions of dollars to business and the government coffers.

The terms of trade fell by nearly two per cent in the March quarter, and economists
predict that this will soon run into double figures.

"While we doubt if today's data are of much surprise to the (Reserve Bank of Australia)
which is already assuming a decline of 20 per cent in the terms of trade this year, they
provide a reminder of the impending fall in national income and its implications for spending,
investment and employment," RBC Capital Market senior economist Su-Lin Ong said.

The Australian Bureau of Statistics's export price index, released on Friday, fell
4.6 per cent in the March quarter, the fastest rate of decline since June 2003.

The bureau's import price index fell by a lesser degree, down 2.8 per cent for the
same three months, but still at the weakest pace in over two years.

The fall in the export index included a drop of up to 27.5 per cent in metal and ore
prices and a 22.7 per cent decline in prices of petrol products.

A 55.5 per cent tumble in fertiliser products prices led the decline in the import
index, followed by 32.5 per cent slump in imported petrol products prices.

ANZ economist Alex Joiner expects the terms of trade to deteriorate by as much as 15
per cent in 2009.

"As a result the trade surplus will return to deficit and the improvements in the current
account seen in recent quarters will reverse," Dr Joiner said.

The government forecast a 12.75 per cent decline in the terms of trade in 2009-10 in
its its Updated Economic and Fiscal Outlook released in February, after an estimated 9.0
per cent increase in 2008-09.

Still, Treasurer Wayne Swan on Thursday warned that both revenue and economic growth
would be "significantly worse" than previously forecast when he releases his budget on
May 12.

This, he said, is the result of the global recession hitting the resources sector and
the economies of the country's major trading partners.

In February, Australian economic growth for 2009-10 was forecast by the government
at a mere 0.75 per cent growth.

The fall in the import price index bodes well for a benign inflation reading when the
March quarter consumer price index (CPI) is released on Wednesday.

An AAP survey of 11 economists released on Friday forecast a quarterly rise in the
CPI of 0.5 per cent, dragging the annual rate down to 2.9 per cent and back within the
RBA's two to three per cent target.

This compares with an annual rate of 3.7 per cent in the December quarter and a hefty
5.0 per cent in the September quarter of 2008.

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KEYWORD: ECONOMY WRAP

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