SYDNEY/MELBOURNE (Reuters) - Most world economies from Germany to Japan are bearing the brunt of an interminable U.S.-China trade war but one country that has been insulated from the blow so far is Australia, which is rolling in record export dollars.

FILE PHOTO: A salesman arranges milk products imported from Australia at a supermarket inside IAPM mall in Shanghai, China, August 15, 2015. REUTERS/Aly Song/File Photo

Iron ore prices are hitting new highs, yet the Aussie dollar is wallowing near recent lows while Chinese demand for Australian goods has remained strong, proving to be a triple bonanza for the A$1.9 trillion ($1.3 trillion) economy.

In 2018, exports of goods and services from Australia jumped 13% from 2017. In the five months to May, as the trade war intensified, they rose 15% from a year earlier.

The export boom is providing Australia’s newly re-elected government with more fiscal firepower to prop up the country’s struggling economy, which is expanding at its slowest pace since the 2008 global financial crisis.

It has also lifted the Reserve Bank of Australia’s (RBA) confidence, with Governor Philip Lowe recently saying “a pickup in the resources sector” was supporting the economic outlook. Exports account for about a quarter of gross domestic product (GDP).

“Trade is a big support for the Aussie economy,” said Sydney-based CommSec economist Ryan Felsman, who expects Australia’s record stretch of 28 years of recession-free growth to extend awhile.

“There are uncertainties around global trade, but Australia has been weathering the storm,” Felsman added. “The economy is in a slow lane but the support from trade is certainly helping.”

Indeed, a series of record trade surpluses might even have gifted Australia its first current account surplus in four decades last quarter from a deficit of A$2.9 billion - the smallest since 1979.

This comes at a time when global growth is slowing, hurt largely by the escalating tariff dispute between the United States and China which has hit trade and, in turn, business sentiment around the world.

‘ONE-TRICK PONY?’

Australia has been the biggest beneficiary of a recent surge in prices of its top export, iron ore, after a dam disaster in Brazil crimped global supply. Shanghai iron ore prices hit a 5-1/2 year peak of $126.5 SH-CCN-IRNOR62 earlier this month.

Iron ore’s share of Australia’s total exports to China is 43%. But China is also a big buyer of Aussie coal and foods such as dairy and meat, while education and tourism are major attractions too.

Australian exports aimed solely at Chinese domestic consumption have been rising.

They now account for 5% of Australia’s GDP, larger than the value added of the country’s retail industry at 4.6%, according to an analysis by Commonwealth Bank of Australia based on data from the Asian Development Bank.

Surprisingly, that demand is equally led by both mining and non-mining industries, the analysis showed.

“Australia’s exports to China are much deeper and wider than just exports of iron ore to make steel for Chinese fixed investment,” said Joseph Capurso, Sydney-based senior currency strategist at CBA.

“We hope this goes some way to busting the myth that the Australia-China trade relationship is a one-trick pony based on iron ore.”

A third factor helping Australia's economy is a weaker Aussie dollar AUD=D3.

The commodity-linked currency has been on a slippery slope for much of this year, boosting Australian exporters’ revenues. It is currently trading around $0.7000, compared with around $0.90 during the mining boom.

The broken link between soaring exports and the depreciating local dollar has led the government of Prime Minister Scott Morrison to promise a budget surplus this year after a decade of shortfalls.

NO FLOW

The Aussie dollar has been weighed by expectations that interest rates in Australia will stay low for a long time to come after the RBA cut rates twice since June to a record low 1% and as miners have so far held back from hefty capital works.

Some analysts see the Aussie sliding to $0.65 this year on expectations the RBA will take interest rates deeper into record territory, a move that would further support export revenues.

The benefit of strong external demand and prices is not felt across the economy, though. In the current cycle, global miners such as BHP Billiton BHP.AXBHPB.L are no longer seen splurging. They are hiring fewer people and doling out smaller pay hikes, government data shows.

Capital spending by Australia’s top three iron ore miners had reached $45 billion in 2011/12. It is now around $13 billion.

Still, economists are hopeful exports will come to the rescue yet again.

“More fiscal stimulus is likely to be required and this will be made possible by stronger-than-expected tax revenues on the back of the surging iron ore price,” AMP economist Shane Oliver said.

“Ultimately the combination of rate cuts, fiscal stimulus, the lower Aussie dollar, infrastructure spending, stronger mining investment and hopefully continuing solid export demand will see Australia avoid recession and growth pick up again sometime next year.”