China Helps Australia's Economy Grow Through Global Slowdown: Deloitte Report

- Jul 15, 2019-

SYDNEY - Despite a "global slowdown," Australia's economy has managed to stay afloat thanks to a raft of stimulus measures and a surge in Chinese demand for commodities, a new report by Deloitte Access Economics said on Monday.

While Australia has experienced falls in the real estate market, severe drought, stagnant wage growth and weak consumer spending over the past 18 months, strength in its robust resources sector has not waned.

This, combined with record low interest rates and generous tax breaks that were introduced by the newly-elected Morrison government should help keep Australia's economy on track, Deloitte Access Economics Partner Chris Richardson said in the firm's latest Business Outlook for the month of June.

"Overall global growth looks set to stay in the slow lane through the rest of 2019 and through 2020 as well, though the extent of that slowdown looks to be contained as central banks start to boost their assistance to growth, and as government budgets do the same," he said.

"Remarkably, despite the global slowdown, the world has given Australia a big pay rise, as China's stimulus means a surge in the demand for and prices of Australian coal and iron ore."

Although Australia's inflation levels remain subdued mainly because of low wage growth, Richardson said the country's central bank is now beginning to change direction when it comes to monetary policy.

"For years the Reserve Bank of Australia (RBA) thought full employment meant unemployment of "around 5.0 percent," but now it thinks unemployment can go a little under 4.5 percent before wages start to party. Australia can go stronger-for-longer before inflation revs up," he said.

"But getting unemployment under 4.5 percent is more than the RBA can do by itself, so official rates are headed to 0.75 percent or 0.5 percent pretty fast, and things get more complicated after that."

"We may be in for a phase in which Australia joins much of the world in having interest rates very low for some time. That change of tack by the RBA is keeping the Australian dollar under control despite sky-high commodity prices."

In fact, according to Richardson, weakness in the Australian dollar is actually helping the nation's exports stay competitive.

"The falling Australian dollar will gradually provide some renewed tailwinds (aided by Indian and Chinese student growth). And global commodity prices are bigger than Christmas, generating such a massive jump in mining profits that, despite their caution, more miners are considering new investments," he said.

"At the state level, China's striking stimulus has commodity prices riding high, and that's helping Western Australia and Queensland get their mojo back."

"China is doing its darndest to spark a recovery in Western Australia, with the state's miners now adding capacity and hiring workers in iron ore, gold and lithium," Richardson added.