Australia warned on Monday that the “softness” of China’s economy and tumbling iron ore prices could leave a multibillion-dollar hole in the nation’s budget.
Troubles in China’s massive construction sector have seen iron ore prices drop about 30 percent since the start of the year — and the ripple effects are now being felt in Australia.
Australia is the world’s largest producer of iron ore, the main raw component for making steel used in building homes, railways and other infrastructure.
Photo:AFP
Australian Treasurer Jim Chalmers warned the “softness in the Chinese economy” and sinking iron ore prices were reminders that Australia was “not immune from volatility and uncertainty in the global economy.”
His department now believes the faster-than-expected fall could reduce tax receipts by about A$3 billion (US$2 billion) over the next three to four years.
The metal accounted for 18 percent of Australia’s total exports last year. After months of worry about China’s ailing real-estate sector and excess manufacturing capacity, the price of iron ore sank by more than 7 percent in the past week alone.
China Baowu Steel Group Corp (寶武鋼鐵集團), the world’s largest steelmaker, last week warned that the sector’s troubles could be longer and more severe than expected.
Australian mining firms have already taken a hit, with shares in Rio Tinto Ltd and BHP Group Ltd — two of the world’s biggest producers — down about 20 percent since the start of the year.
Reserve Bank of Australia Governor Michele Bullock told the Australian parliament last week that given the country’s dependence on China, she was watching the situation closely.
“Developments in China can have quite a big impact on the way our trade develops, and therefore on our growth,” she said.
“It’s our biggest trading partner, and it’s very important in particular for the prices of the commodities that we export, in particular iron ore,” she added.
The Reserve Bank of Australia remains some way off easing monetary policy, as inflation is proving persistent and would only return back to the target range late next year, Bullock said last week.
The Reserve Bank has kept its policy rate at a 12-year high of 4.35 percent since November last year.
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