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Clear and Present Danger: Australia to be hit as Chinese economy unravels; The iron ore price will continue to tumble, causing significant issues for Australia
Topic Started: 5 Sep 2014, 03:22 PM (7,327 Views)
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'Clear and present danger': Australia to be hit as Chinese economy starts unravelling

September 5, 2014 - 11:05AM
Rose Powell

A resources expert has forecast the iron ore price will continue to tumble as the Chinese economy begins "unravelling", causing significant issues for Australia.

Speaking at a conference on Thursday, the federal government's former top resources forecaster Quentin Grafton said the iron ore price was unlikely to recover quickly, leading to a painful downturn in the Australian economy in 2015.

"This isn't about doom and gloom, it's about looking at the risk and numbers. It's a clear and present danger," Mr Grafton said.

He said the Reserve Bank of Australia should prepare for a difficult ride as the overpriced property market and high dollar created a challenging economic environment as coal and iron ore prices dropped.

Mr Grafton's comments join an increasingly vociferous choir of concern about the Chinese economy, with investor fears stoked by a Chinese residential property market that is experiencing its worst slump on record.

The average price of new homes has been falling in China for months, with the rate of decline accelerating from June (0.5 per cent) to July (0.8 per cent), sending tremors through the economy. It dropped another 0.6 per cent in August, bringing the average to $US1737 per square metre.

Property market issues are of critical concern for the Chinese economy and global investment community, as the property sector is a key economic driver that contributed 15 per cent of China's 2013 gross domestic product.

In a recent newsletter about the Chinese economy, Westpac analysts said real estate was the heart of domestic confidence issues and predicted a grim future for ongoing growth.

"Housing construction activity is vital to employment levels and land values are vital to the functioning of large swathes of the credit system," Westpac's Phat Dragon explained.

"In the early moments of a policy induced housing correction, the economy tends to be able to maintain its composure for a number of months, occasionally even quarters, before the ultimate capitulation."

China's property market woes are directly linked to the Australian economy as Chinese residential property construction is a leading consumer of iron ore, which accounts for $1 of every $5 of Australian exports.

The dropping demand and oversupply issues have caused the iron ore price to drop to a five year low. It is currently hovering around $US84.38 a tonne.

The next historic low would take a significant slide to $76 a tonne, a rate not seen since September 2009.

Read more: http://www.smh.com.au/business/china/clear-and-present-danger-australia-to-be-hit-as-chinese-economy-starts-unravelling-20140905-10cs4j.html
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John Frum
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Buckle up kids, the moment is fast approaching.
"It were not best that we should all think alike; it is difference of opinion that makes horse races." - Mark Twain on why he avoids discussing house prices over at MacroBusiness.
"Buy land, they're not making any more of it." - Georgist Land Tax proponent Mark Twain laughing in his grave at humourless idiots like skamy that continually use this quip to justify housing bubbles.
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miw
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The average price of new homes has been falling in China for months, with the rate of decline accelerating from June (0.5 per cent) to July (0.8 per cent), sending tremors through the economy. It dropped another 0.6 per cent in August, bringing the average to $US1737 per square metre.


This makes me doubt the stats. Overall, the average price for new homes in China has never reached US$1737/sqm. In other words, lots and lots of transactions at the lower end are being missed. We actually don't know what is really going on. As usual.
Edited by miw, 5 Sep 2014, 03:32 PM.
The truth will set you free. But first, it will piss you off.
--Gloria Steinem
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newjez
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See skamy, it's not about gloom and doom, it's about reality.
miw
5 Sep 2014, 03:31 PM


This makes me doubt the stats. Overall, the average price for new homes in China has never reached US$1737/sqm. In other words, lots and lots of transactions at the lower end are being missed. We actually don't know what is really going on. As usual.
http://www.globalpropertyguide.com/Asia/china/Price-History

As long as they have been consistent and are comparing apples with apples.
Edited by newjez, 5 Sep 2014, 03:44 PM.
Whenever you have an argument with someone, there comes a moment where you must ask yourself, whatever your political persuasion, 'am I the Nazi?'
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miw
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newjez
5 Sep 2014, 03:32 PM
As long as they have been consistent and are comparing apples with apples.
Not really. Because the luxury end is suffering for reasons that we know are irrelevant to the low end. It is hard to tell what is happening in the milk if you are only examining the cream.

In a way it is even worse if you know you are examining all the cream and some of the milk, but don't know what percentage of the milk you are capturing.

And the vast majority of it is milk.
Edited by miw, 5 Sep 2014, 04:04 PM.
The truth will set you free. But first, it will piss you off.
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Bardon
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John Frum
5 Sep 2014, 03:29 PM
Buckle up kids, the moment is fast approaching.
Whilst it is fast approaching I don't think the mother of all boom will get legs for a few years yet, but I hope that you are right..
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Perthite
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End of the investment boom was enough... we don't need this.

http://www.perthnow.com.au/business/companies/wa-mines-may-close-if-iron-ore-drops-below-us80-says-report-by-chinabased-analyst-ian-roper/story-fnkjk9ku-1227048061356
Edited by Perthite, 5 Sep 2014, 05:15 PM.
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b_b
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Perthite
5 Sep 2014, 05:10 PM
It's the investment cycle which we (Australia) have to manage. The iron ore price is pretty irrelevant unless you are a shareholder of the mining companies.
(S – I) + (T - G) + (M - X) = 0
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Ned Flanders
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b_b
5 Sep 2014, 05:25 PM
It's the investment cycle which we (Australia) have to manage. The iron ore price is pretty irrelevant unless you are a shareholder of the mining companies.
How are the terms of trade irrelevant?
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b_b
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Ned Flanders
5 Sep 2014, 05:41 PM
How are the terms of trade irrelevant?
Not too many people I know use iron ore to buy TV's.
Edited by b_b, 5 Sep 2014, 05:51 PM.
(S – I) + (T - G) + (M - X) = 0
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