China's Economic Slowdown Renew Fears Of Recession In Australia

The slow growth of the Chinese economy has grown increasingly worrisome for Australia as it moves away from its heavy reliance on mining exports. Poor company profits and weak salary growth are undermining the Australian government’s budget plans.

A top economic forecaster has warned of a possible recession in Australia amid China’s downturn. According to Deloitte Access Economics’ review of the Australian economy, the lower interest rates and the drop in exchange rate has offset most of the damage caused by a slump in commodity prices, construction and resources sector.

The report, compiled by partner Chris Richardson, said Australia is “navigating the tricky shoals of transition” away for the construction phase of the resources boom. Richardson believes China is managing a more difficult transition that may threaten Australia’s economic outlook. “It is certainly possible to see a scenario in which China’s slowdown becomes a sharper shake-out than we’ve allowed,” said Richardson.

He mentioned the possibility of a recession scenario caused by China’s slowdown. Richardson said Australia will catch “pneumonia” if China “sneezes.” The report also noted that the Reserve Bank of Australia could lower interest rates under that scenario but the central bank will have little to move.

In case of a recession, the Deloitte report said the government will likely implement a stimulus package. However, the political challenge of deficits might restrict its size and effectiveness.

All key indicators of China’s economic performance remain below the levels observed during the global financial crisis. Even if China can stabilise growth like what Deloitte has predicted, it may still not be enough to keep commodity prices from falling further, reports The Australian. While slow wage growth is aiding businesses in Australia to recover some of its competitiveness lost in the resources boom, it has slowed down the country’s budget tax revenue and national income.

BNP’s analysis of the country’s iron mines and the entire economy is bleak. In its report, BNP has described Australia as the “biggest loser” from economic dynamics as iron ore is predicted to account for nearly 57 percent of global iron ore trade. The mining slowdown in Australia has greatly affected income from exports.

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