Courtesy of Mish.
The Sydney Morning Herald warns about a ‘clear and present danger’: Australia to be Hit as Chinese Economy Unravels
Speaking at a conference on Thursday, the federal government’s former top resources forecaster Quentin Grafton said the iron ore price was unlikely to recover quickly, leading to a painful downturn in the Australian economy in 2015.
“This isn’t about doom and gloom, it’s about looking at the risk and numbers. It’s a clear and present danger,” Mr Grafton said.
He said the Reserve Bank of Australia should prepare for a difficult ride as the overpriced property market and high dollar created a challenging economic environment as coal and iron ore prices dropped.
Mr Grafton’s comments join an increasingly vociferous choir of concern about the Chinese economy, with investor fears stoked by a Chinese residential property market that is experiencing its worst slump on record.
The average price of new homes has been falling in China for months, with the rate of decline accelerating from June (0.5 per cent) to July (0.8 per cent), sending tremors through the economy. It dropped another 0.6 per cent in August, bringing the average to $US1737 per square metre.
Property market issues are of critical concern for the Chinese economy and global investment community, as the property sector is a key economic driver that contributed 15 per cent of China’s 2013 gross domestic product.
China’s property market woes are directly linked to the Australian economy as Chinese residential property construction is a leading consumer of iron ore, which accounts for $1 of every $5 of Australian exports.
The dropping demand and oversupply issues have caused the iron ore price to drop to a five year low. It is currently hovering around $US84.38 a tonne.
The next historic low would take a significant slide to $76 a tonne, a rate not seen since September 2009.
Commodity Producer Countries Will Be Hit Hard
I have been discussing the same setup for quite some time. One of the first on this train has been Michael Pettis at China Financial Markets.
China is going to slow, without a doubt, and commodity producer countries such as Australia and Canada will take a hit. …
