China Fallout Hits Hard
Anthony Fensom, The Diplomat
China’s impressive growth over the last two decades has helped commodity prices hit new highs, adding billions to the national income of mineral exporters such as Australia and Indonesia. But with the resource boom turning to bust, just how bad could the flow-on effects be for the region?
One warning of the consequences has come from ratings agency Standard & Poor’s, which has forecast that even a mild slowdown in China’s economy could send Australian unemployment skyrocketing, hitting housing prices as well as commodities.
S&P’s “doomsday scenario” of a hard landing in China of just 5 percent growth in gross domestic product in 2014 would cause Australia to fall into recession for the first time since 1990, send the jobless rate to double-digit territory and cause property prices to sink by 25 percent.
While the agency sees the most likely outcome as a China slowdown to 7.3 percent GDP growth next year, analyst Craig Michaels asked: “Are we now seeing the beginning of the end of Australia’s economic run?”
Japan’s largest brokerage Nomura has forecast that weaker Chinese growth could reduce Australia’s GDP by up to 0.7 percentage points, given that China buys around three-quarters of Australia’s iron ore exports and nearly a quarter of its coal. The result would be the nation’s weakest growth since the global financial crisis, of just 1.4 percent.
