The Asian Crisis and Australia’s Export Sector

Since the onset of the Asian crisis in the middle of 1997, people looking for signs of the impact of the crisis on Australia’s economy have focused their attention on its trade sector. The reasoning behind this focus goes something like this. The regional recession generated a sharp reduction in demand for exported goods and services to the affected countries. Falling demand plus a stronger Australian dollar vis-à-vis most of the affected currencies has put pressure on Australian exporters through both quantity and price effects. On the import side, the robustness of Australia’s domestic demand, again in conjunction with price effects caused by exchange rate appreciation, resulted in a sharp increase in imports from these countries. The current account deficit deteriorated markedly as a result, increasing financial market volatility and investor uncertainty to the point where many have argued that previously healthy domestic growth could be brought to a halt.