Australian consumers are more worried about the medium term outlook than at the peak of the financial crisis, and rightfully so.
As The Telegraph reports, by the end of the first quarter this year, Australia’s net foreign debt had climbed to a record $955bn, equal to an already unsustainable 60pc of gross domestic product, and is set to rise as RBA’s bet that depreciation in the value of the country’s currency would help to offset the decline in its overbearing mining industry hasn’t happened to the extent they would have wished.
Furthermore, as UBS explains, China’s real GDP growth cycles have become an increasingly important driver of Australia’s nominal GDP growth this last decade. With iron ore and coal prices plumbing new record lows, a Chinese (real) economy firing on perhaps 1 cyclinder, and equity investors reeling from China’s collapse; perhaps the situation facing Australia is more like Greece than many want to admit, as Gina Rinehart, Australia’s richest woman and matriarch of Perth’s Hancock mining dynasty stunned her workers this week: accept a 10% pay cut or face redundancies.
The government in Canberra and the Reserve Bank of Australia, The Telegraph explains, had bet that depreciation in the value of the country’s currency would help to offset the decline in its overbearing mining industry. Contudo, that hasn’t happened to the extent they would have wished.
Last month Gina Rinehart, Australia’s richest woman and matriarch of Perth’s Hancock mining dynasty delivered an unwelcome shock to her workers in Western Australia: accept a possible 10pc pay cut or face the risk of future redundancies.
Ms Rinehart, whose family have accumulated vast wealth from iron ore mining, viu sua fortuna diminuir desde que os preços das commodities começaram a sua slides inexorável no ano passado. O magnata da mineração australiana tem visto seu colapso riqueza estimada em cerca de US $ 11 bilhões (£ 7 bilhões) a partir de uma fortuna que foi pensado para valer cerca de US $ 30 bilhões apenas há três anos.
Este colapso colossal na riqueza é sintomático do problema econômico mais amplo agora enfrenta Austrália, que durante anos tem sido conhecido como o país de sorte devido à sua preponderância em recursos naturais como minério de ferro, carvão e ouro. During the boom years of the so-called commodities “super cycle” when China couldn’t buy enough of everything that Australia dug out of the ground, the country’s economy resembled oil-rich Saudi Arabia.
Contudo, 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. Just like Saudi Arabia, which is now burning its foreign reserves to compensate for falling oil prices, Australia faces a collapse in export revenue.
Recently revised figures for April show that the country’s trade deficit with the rest of the world ballooned to a record A$4.14bn (£2bn). That 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.
The respected Australian economist Stephen Koukoulas recently wrote of the dangers that escalating levels of foreign debt could present for future generations. Could a prolonged period of depressed commodity prices even turn Australia into Asia’s version of Greece, with China being its banker of last resort instead of the European Union.
As UBS further explains, China’s real GDP growth cycles have become an increasingly important driver of Australia’s nominal GDP growth this last decade.
The property-driven slowdown in China’s GDP growth is continuing to having a disproportionately large negative impact on Australia’s economy. This is because China clearly remains Australia’s largest export destination, having peaked at a record high ~? share of total exports last year (equivalent to ~7% of GDP), but more recently retracing sharply to the current 28% share. This reflects the >20%y/y drop in Australia’s nominal exports to China in FY15 – which is on track to subtract ~1¼%pts y/y from nominal GDP.
Em contraste, FY14 export values surged 26%y/y, adding 1¼%pts y/y to nominal GDP. Notably, this turnaround entirely reflects collapsing prices, which more than offset surging volumes. (De fato, this overall fall in export values is despite a boom in Chinese tourism arrivals which are currently growing ~20%y/y.)
Fraca demanda chinesa continua a ser um risco chave desvantagem, não só para a economia da Austrália, mas também o RBA & outlook AUD. A fraqueza no crescimento chinês está tendo o impacto negativo mais evidente na Austrália porque a nossa cesta de exportações é (quase) concentrado exclusivamente em mercadorias (volta para ~? share), onde a China é geralmente o marginal price-setter. De fato, depois de minério de ferro por si só atingiu um 30% participação no total das exportações australianas em 2013, o recente colapso renovada nos preços do minério de ferro viu a sua quota de exportação cair de volta para mais perto 20%. The price effect has been a key driver behind Australia’s terms of trade collapsing by ? since its peak in 2011.
This negative income shock is weighing heavily on Australia’s fiscal position, which has seen its deficit consistently worse than expected over that period; as well as leading to a ‘capex cliff’, which has seen the RBA cut rates and drag the AUD/USD down to a 6-year low. De fato, an ABS survey of the outlook for mining investment in FY15/16 implies a ~37% collapse which could directly subtract a massive 2%pts y/y from nominal GDP. Assim sendo, weak Chinese demand remains a key downside risk for not only Australia’s economy but also the RBA & outlook AUD (with the latter still expected to depreciate further to 0.70USD ahead).
As The Telegraph concludes, rather ominously,
The problem is that Australia, after decades of effort to diversify, is looking ever more like a petrodollar economy of the Middle East, but without the vast horde of foreign currency reserves to fall back on when commodity prices fall.
Em vez de, Australians must borrow to maintain the standards of living that the country has become accustomed to, which even some Greeks will admit is unsustainable.