Export prices plummet

Export prices plummeted in the June quarter, threatening to tip Australia's economy back into a contraction, trade data released today shows.

Export prices accelerated their falls in the second quarter dropping 20.6 percent, following a 4.6 percent fall in the first quarter of 2009. Analysts surveyed expected a 16 percent fall in quarterly prices, according to Bloomberg.

They were pulled down by lower metals prices and the rising value of the Australian dollar.

TD Securities economist Annette Beacher said export prices have been hit by a 14.4 percent appreciation of the Australian dollar in the quarter, along with a one-third fall in hard commodity prices such as coal and iron.

At the same time, import prices dropped 6.4 percent in June quarter, after a 2.8 percent fall in the first quarter. Analysts surveyed by Bloomberg expected a 6 percent fall.

The fall in export prices will weigh on Australia's terms of trade, or the price of the nation's exports against its imports.

Falling "terms of trade means falling incomes and falling incomes means corporates in distress which means more employment falls and we end up with a slower economy for longer," said TD Securities economist Annette Beacher.

The data pulled the dollar beneath 80 US cents and was recently at 79.84 US cents. Earlier it trading at about 80.5 US cents.

Growth threat

"The fall in export prices was a little more than we expected," said JP Morgan economist Helen Kevans.

Based on today's number, she expects terms of trade will "tank another 15 percent in the second quarter." 

The lower value of exports will flow through into the current account balance, a component of the gross domestic product growth figure, which grew by 0.4 percent in the March quarter, after shrinking 0.5 percent in the final three months of 2008.

Ms Kevans said that given how much exports terms of trade had fallen, there was risk of further falls in the future.

Collapsing export prices, paid on such key resources as iron ore and metals, removes an area of strength that had bolstered the economy in past years.

"In previous years we've had ballooning terms of trade and that's provided a lot of stimulus to the economy and that's resulted in tax cuts and the like to the consumer," she said.

"Now that the tables are turned... the terms of trade will be a massive drag."