Abare on Tuesday moderated its previous forecast to predict that the value of total Australian commodity exports would fall by 0.8 per cent to A$66.5 billion in 1998/99 (July-June). That compares with a previous forecast made in the June quarter of a 1.2 per cent decline.

The forecast fall in total commodity exports would be the first since 1980/81.

While the world economic outlook has deteriorated significantly over the past few months, the latest Abare papers focus on the risks from a possible devaluation of China's currency, which would make China's exports more competitive and could hurt Australian exports of wool, cotton and some minerals.

"China is an important market for Australian commodities," taking about seven per cent of agricultural exports and fiveper cent of mineral exports, Abare said.

In addition, the outlook for Japan, Australia's most important commodities market, has deteriorated significantly over the past few months. And there are signs that growth in the United States and western Europe may be easing.

The gloomy outlook from the Australian government commodity forecast agency follows revised estimates of 10.1 per cent growth in commodity exports to A$67.0 billion in 1997/98, up from a previous estimate of 7.3 per cent growth.

The deteriorating world economic outlook is seen as the main factor behind weakening commodity export prospects.

Farm exports are forecast to fall four per cent to A$22 billion in 1998/99, while mineral exports are forecast to grow 1.5 per cent to A$41.9 billion.

That compares with five per cent growth in farm exports in 1997/98 to A$22.9 billion, and 12.9 per cent growth in mineral exports to A$41.9 billion.

The expected decline in farm exports is largely because of an expected fall in the value of wool andwheat exports. The current poor market outlook for wool is expected to continue throughout most of 1998/99, due to weak Asian demand and strong competition from lower priced synthetic fibres.

For wheat, a large combination of large world stocks and increasing competition in Australia's major markets is expected to more than offset the positive price effect of a lower Australian dollar.

The value of coarse grains, cotton and dairy products exports are forecast to rise, while the value of wheat, wool, sugar, beef and veal shipments are forecast to decline.

Despite sluggish world demand for minerals, which have been affected by events in Asia and Russia, and growth in world supply, average prices received by Australian minerals exporters are expected to rise because of the depreciation of the Australian dollar.

Abare's latest forecasts are based on an assumed Australian dollar value of 58 US cents over 1998/99, a sharp reduction from its previous assumption of 64 US cents.

Lower world economic growthin 1999 is expected to translate into weak demand for minerals, while growth in supplies will continue to outpace consumption.

"In an environment of weak prices, a rise in protectionist sentiment could be a factor in world minerals markets in the year ahead," Abare said.

Earnings from exports of coal, uranium, iron ore, steel, aluminium and lead are expected to rise, while earnings from oil and gas, nickel and gold are likely to be lower.

Abare is gloomy on the outlook for world growth, which has weakened markedly with Financial instability in Latin American and the economic downturn in Russia.

For Japan, a sustained recovery depends crucially on government policy measures to boost domestic demand. The economy is assumed to contract by 1.7 per cent in 1998, followed by weak growth of 0.5 per cent in 1999.

Although economic growth in most Asian countries is assumed to pick up slightly, growth in Europe and North America -- where growth has been strong in 1998 -- is expected to weaken.

Theshort-term prospects for the financially troubled Asian economies vary significantly, with activity in some countries expected to stabilise in 1999 but the contraction expected to continue in Indonesia and Malaysia.