SYDNEY -- Australia's fortunes are plunging along with resource prices. Iron ore is Australia's No. 1 export, with coal coming in at No. 2. But the price of each is dropping precipitously, mostly because of China's economic slowdown and a corresponding fall in demand.
Resources and energy account for almost half of Australia's exports. This resource dependency now has the country's economy facing an uphill climb. Given that the nation's service sector accounts for 70% of gross domestic product, putting the brakes on resource exports will slow the flow of money and possibly hit the overall economy.
Australia's economy has expanded for more than 20 consecutive years. Credit goes to the resource boom. But resource prices have been accelerating their declines since last year.
The price of iron ore with a Fe content of 62% for delivery to China stood at about $45 a ton on Thursday, down to roughly one-quarter of its recent high, in January 2011, on a month-end basis, according to a Reuters report.
Australia has free trade agreements with the 10-member Association of Southeast Asian Nations, Japan, China and South Korea. It will also enter Trans-Pacific Partnership negotiations, now in the final stages.
Australia had expected these trade deals to give its resource exports a big push. However, foreign automakers have begun moving away from Australian production and are importing cars from Thailand and elsewhere. Japan's Toyota Motor announced in February 2014 that it would halt production in the country by the end of 2017.
When it does, Australia will have no domestic auto production. Along with falling resource prices, the negative effects from those free trade agreements have Australia's economy in a pressure cooker.