China, one of Australia's single largest trading partners, experienced a significant slowdown in its economic growth, which fell from an annual rate of 6.2% to 2.1% in the third quarter of 2024. A persistent downturn in the Chinese economy is expected to depress demand for Australian mineral and energy exports, leading to a substantial reduction in export volumes. However, some economists suggest this might be partially cushioned by domestic economic trends in Australia, where high interest rates and sluggish household consumption also damp demand for foreign imports, alongside a depreciating Australian dollar (AUD).
The AUD exchange rate has fallen by approximately 9.5% against a trade-weighted basket of currencies over the last three quarters. The Australian trade-weighted index (TWI) has declined from 64.2 in January 2024 to 58.1 by October 2024. While a weaker AUD increases the domestic price of imports, it enhances the price competitiveness of Australian commodities and services abroad, potentially helping to support the current account balance over the medium term.
Using the information in Extract A, explain the likely effect of an economic slowdown in China upon the current account of the Australian balance of payments.
