Australia's export slump quietly dragging down the economy

Australian exports have turned from being a significant positive for economic growth and rising national income to a significant negative.

It is an issue that is getting little coverage in the broader economic community, even though it is a key factor behind the stalling in real income growth and sluggish per capita GDP growth.

The economic debate in Australia is concentrating on house prices, house building, immigration, tax policy, investment in data centres and household spending.

And fair enough, too.

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

The vast bulk of the economic debate is all but ignoring or missing the worrying slide in export volumes and export revenue, which are a major drag on the economy already under pressure from high inflation and cost-of-living constraints.

Australia's wealth belongs to its people, not foreign corporations

Despite its vast natural wealth, too many Australians are missing out on its benefits.

In simple terms, the value of goods exports has slumped. Through most of 2022, the monthly value of all goods exported was consistently above $50 billion. It touched $55 billion in June 2022. These were, at the time, record export receipts for Australia.

Fast forward to the latest data and the value of monthly exports has slumped to around $45 billion in May 2026.

Export receipts for LNG and coal have collapsed and these falls have not been countered by growth in other areas.

At the same time, the value of imports has been strong. Most recently, imports have been boosted by the inflow of equipment and machinery associated with the boom in investment in data centres. This has seen the international trade balance in goods – the difference in the value of exports and imports – slide into deficit for the first time in almost a decade.

The deficit of $3 billion in May was just shy of a record and sits in stark contrast to the monthly trade surpluses well above $10 billion, month in and month out, just a few years ago.

The problem is even more acute when looking at the impact of international trade in goods and services on bottom-line real GDP growth.

It is a tale of woe.

Net exports – the difference between the volume of exports and imports of goods and services – have not made a positive contribution to GDP since the December quarter 2023 and even then, net exports added a puny 0.1% to GDP.

In every quarter since then, a total of two-and-a-quarter years, the cumulative impact of net exports has been to slice 2.1% from GDP growth or about 1% per annum. If net exports had been neutral over the year to the March quarter 2026, by way of example, annual GDP growth would have been a hefty 3.5% instead of the 2.5% recorded because of the net export hit.

Flailing newsrooms flog fears of a fictional recession

Anxiety over Australia’s economy fomented by craven anti-Labor ‘reporters’ is unfounded.

Of course, this assumption is complicated by the fact that the negative net exports were in part due to the boom in data centres, but it does illustrate the issues of the deteriorating trade position.

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

What can happen to help solve the problem is for the Australian dollar exchange rate to adjust to meet the loss of international competitiveness.

On that score, the dollar has gone in the wrong direction. It has strengthened appreciable in the last few years both against the U.S. dollar and on a trade-weighted basis.

Part of this Australian dollar strength is a function of good economic management. The triple-A credit rating is a magnet for foreign investment flows, and the debacle in U.S. politics and policy has seen the U.S. dollar weaken against most major currencies, including the Aussie dollar.

What it might signal is that at current levels – close to US$70 cents (AU$1.01) and 65 on a trade weighted index – the Australian dollar is too high. That has to fall to give the international trade parts of the economy a boost.

Since 1983, the Australian dollar has floated freely with very little intervention to target its value. That is as it should be.

The Australian dollar is vulnerable to a kick lower at some stage. Exactly when and how much the Australian dollar will fall is impossible to know.

But it does mean until then, sectors of the economy that have exposure to the international economy will do it tough and as a result, will act as a drag on economic growth.

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