With Australia’s wheat sowing season well under way,[1] investors are paying more attention to the value of the Australian dollar. A weaker Aussie has helped support the nation’s export economy, which accounts for roughly 21% of gross domestic product.[2] With Australian growth shifting into lower gear, the agricultural sector will be looked upon to provide stability later this year when the harvesting period begins.

Australia’s Wheatbelt: A Massive Industry

Australia’s agricultural sector is a $155 billion industry that directly employs more than 300,000 people. When indirect employment is factored, total employment is estimated to be more than 1.6 million people.[3] As an export-driven economy, Australia’s agricultural sector is driven by foreign demand in places like China, Indonesia, Malaysia, South Korea, Japan and the Middle East.

Agriculture was a central component of the recently ratified China-Australia Free Trade Agreement (CHAFTA). China continues to be Australia’s largest agriculture export market. Approximately $9 billion worth of agricultural, forestry and fish products were exported to the world’s second-largest economy in 2014-15, up from $5 billion in 2010-11.[4]

Overview of Australia’s Economy

The Australian economy is facing headwinds in the early part of 2016, forcing the government to downgrade its outlook on economic growth for the foreseeable future. The Australian Treasury expects GDP growth to be 2.5% for fiscal year 2016-17, well below the historic average of 3%. Growth is expected to reach 3% in the next two fiscal years, which is below previous estimates of 3.5%.[5]

The world’s twelfth largest economy is facing unique challenges in 2016. Unlike previous periods, Australia faces a sharp downshift in inflation. So-called core inflation weakened to 1.5% year-over-year in April, the Melbourne Institute recently reported. That’s well below the Reserve Bank of Australia’s (RBA) target range of between 2% and 3%.