The commodities boom made Australia the lucky country.

But rising debt and a slump in Chinese demand for resources signal tough times ahead Down Under

During the boom years of the so-called commodities “super cycle” China couldn’t buy enough of everything that Australia dug out of the ground.

While the rest of the world suffered from the aftermath of the global financial crisis, Australia’s economy – closely tied to China – appeared impervious, with full employment and a healthy trade surplus.

However, a collapse in iron ore and coal prices coupled with the impact of large international mining companies slashing investment has exposed Australia’s true vulnerability and now faces a collapse in export revenue.

The gap between the value of exports and imports is expected to increase as the value of Australia’s most important resources reaches new multi-year lows. Iron ore is now trading at around $50 per tonne, compared with a peak of around $180 per tonne achieved in 2011. Thermal coal has also suffered heavy losses, now trading at around $60 per tonne compared with around $150 per tonne four years ago.

For an economy which in 2012 depended on resources for 65pc of its total trade in goods and services these dramatic falls in prices are almost impossible to absorb without inflicting wider damage. The drop in foreign currency earnings has seen Australia forced to borrow more in order to maintain government spending.

What are the dangers that escalating levels of foreign debt present for future generations? Could a prolonged period of depressed commodity prices even turn Australia into Asia’s version of Greece?

At the end of the first quarter this year, Australia’s net foreign debt had climbed to a record $955bn, equal to almost 60pc of gross domestic product. Although this is far behind Greece, it is nevertheless unsustainable, especially if it is allowed to widen further.

Depreciation in the value of the A$ could help to offset the decline in the mining industry. However, that hasn’t happened to the extent required. Outside mining the economy appears weighted to the only other area of significant growth, real estate.

Australians must borrow to maintain the standards of living that the country has become accustomed to. Watch this space.