But, given that commodity prices have increased substantially over the course of this year, some stability in the terms of trade from here on seems more plausible than it has for some time. Developments in China are likely to continue to have an important influence on commodity prices, given China’s role as both a major producer and consumer of many commodities.
For this reason the outlook for the Chinese economy is a key source of uncertainty for the Australian economy. If commodity prices were to stabilise around current levels, that would be a marked change from recent years. Also, the end of the fall in mining investment is coming into view.