Economists expect 2012 will see a slowdown in the economy of China, Australia’s biggest trading partner. China’s gross domestic product growth could slip to around 8% from more than 9% this year, which will lead to lower demand for commodities. Already, the Reserve Bank of Australia’s index of commodity prices—a weighted basket of Australia’s resource sector exports—has fallen sharply this year. The central bank says the economy’s resources-led surplus may have hit its peak and could decline “somewhat” from here.
via Heard on the Street: Australia’s Juggling Act – WSJ.com.
How does an economy that is growing by 8% need LESS commodities?
I think the thing here is to understand what a +1% drop in the growth rate actually means. I am no economist (nor a good mathematician) but if Chna has been increasing consumption by a rate of 9% (seem to remember it was double-figures not so long ago!), reducing to 8% actually means a contraction. Therefore its materials purchases from Australia will be a Big reduction in export income for Aussie. Couple that with the steady corporate stock/share buy-ins and takeovers by the Chinese, and they have increasing influence over mineral ores price-setting. We have heard this year of Australia’s 2-speed economy – seems like the top speed of mining might drop to the slow speed of the domestic economy in 2012.
Good question. Demand for commodities is strongly weighted towards real estate and infrastructure development. Both of these are slowing so demand is falling despite an 8% growth rate — not because of it.
The 2 speed economy in Australia as I see it is Eastern States Vs Western Australia. In the last quarter, the WA economy grew by 8.5%, whilst eastern states contracted just marginally. What do you predict W.A’s economic growth to be in 2012 in lieu of your insights above?
I agree with Bill, 8% growth means it will need 8% more commodities than last year. The only way this would not be so if they have been stock piling inventory and will use 2012 to run it down!.
peter webb