Much has been said about the impact of the COVID-19 pandemic on the global economy, which is expected to see the biggest contraction since the 1930s.

This has sent the prices of some commodities down sharply, though an emerging wave of government stimulus measures should provide some upside.

However, the Australian Department of Industry, Science, Energy and Resources believes households are likely to remain cautious and predicts the world economy will decline by 5.5 per cent to 6.5 per cent this year – in line with OECD estimates.

This is expected to return to growth of 4.5 per cent to 5.5 per cent in 2021, though economic activity is not expected to return to pre-pandemic levels until 2022.

For Australia, the decline in commodity prices has been felt mostly by the energy sector, which has been hit by the double whammy of Brent crude prices, down an average 40 per cent this year, and liquefied natural gas prices declining at an accelerated rate.

The former is due in large part to travel restrictions with long-haul airline travel expected to take some years to recover.

Thermal coal, which fell sharply in 2019, fell further in the June quarter and is likely to remain low through the rest of 2020.

Despite this, the Department of Industry, Science, Energy and Resources has only reduced the country’s forecast export earnings modestly for the 2019-2020 financial year from $299bn to $293bn in its latest Resources and Energy Quarterly report.

But even the reduced export earnings target for this year will still be the largest in Australian history if its met.

This drops down to $263bn in the 2020-21 financial year and $255bn in the 2021-22 financial year as low prices and a stronger Australian dollar are expected to offset higher export volumes.

A key part of this is due to iron ore earnings, which appeared to have allowed the commodity’s export earnings to top $100bn.

While the COVID-19 pandemic has impacted market demand, it has also affected supply from Brazil – the second largest producer of iron ore.

Gold is the other stand out performer as prices rise to an eight-year high, enough to send export earnings to a new record of almost $32bn.

Federal Minister for Resources, Water and Northern Australia Keith Pitt says while commodities and export earnings will continue to be affected by global economic conditions, investment in the resources sector remains strong.

“Companies are investing an estimated $38bn this financial year, which is an increase of 15 per cent. Investment the following year is expected to remain stable,” he said.

“The strong investment by mining companies in Australia is a good indication of long-term confidence in the sector. Resources will continue to be the foundation of Australia’s economic success.”

However, the Department of Industry, Science, Energy and Resources warned that its forecast came with significant risks.

It noted that a second outbreak of COVID-19, another surge in trade tensions or an unexpectedly slow global recovery could all spell an end to the party.