No matter who wins on May 21, economic pain will be waiting for them

While the local election campaign is dominated by cheery narratives of economic success and big spending fuelled by borrowing, the international economic environment is rapidly turning into a much less benign one for Australia.

It may not be headline news here, but Indonesia’s latest export ban — the second one this year — is likely to have major impacts on global markets and trigger a price surge that will add to already super-high levels of inflation.

In January an Indonesian ban on exports of thermal coal saw world prices surge to all-time highs. On Friday it was a ban on exports of palm oil, again causing record prices.

In both cases, Indonesia is the biggest exporter of the commodity globally and has reacted to domestic shortages that threatened the reliability of power supplies in the case of coal and domestic food prices in the case of palm oil. And in both cases, China is a victim, being the biggest importer of thermal coal from Indonesia and the biggest importer and user of vegetable oils in the world.

The effect of the Indonesian decision isn’t a one-off — it comes on top of a steady growth in cooking oil prices globally over the past year or more. Palm oil has increased by more than 50% since December; the price of sunflower oil has approximately doubled since this time in 2021, mainly due to the Russian invasion of Ukraine, which is the world’s biggest grower and exporter of sunflower oil.

It’s another blow to China’s struggling economy as it loses the battle to control COVID, despite President Xi Jinping’s determination to keep imposing a zero-COVID policy — even at the cost of caging people in Shanghai inside their buildings.

Parts of Beijing are joining the whole of Shanghai in lockdown, even though case numbers in the capital are so far a tiny fraction of the tens of thousands in Shanghai, which has seen a spike in both symptomatic cases — previously a small fraction of total cases — and deaths.

A surge in the price of a staple such as cooking oil in China — with flow-on effects around the world — will only add to inflationary pressures and encourage central banks to accelerate already planned interest rate rises. That’s despite the inability of monetary policy to address political decisions like those of the Indonesian government, which is motivated by domestic considerations.

But a slowing Chinese economy, and the prospects of central banks slamming on the brakes even faster, is pushing commodity prices down. On Monday oil dropped again, and so did copper, and iron ore futures on the Singapore futures market fell more than US$14 a tonne (almost 10%) to US$136 a tonne.

The price of Newcastle thermal coal fell by up to U$S11 a tonne on Monday as a result of the Beijing lockdown news.

Australia has had the best of a tumultuous global economy in recent months. The road ahead looks decidedly bumpier, no matter who’s in the Lodge.