Treasurer Jim Chalmers has warned that Australia’s largest trading partner, China, could experience its worst economic growth in almost fifty years.
The Chinese economy, the second largest in the world, grew by 5.2 percent last year.
But Dr. Chalmers said China’s growth rate is likely to be a “four” for three years in a row – marking the slowest growth in several years since the era before the country opened to world trade in 1978.
“What we’re looking at here in the current forecasts that will be finalized between now and the Budget itself is growth of a four ahead, for three consecutive years in China,” he told ABC’s Insiders program on Sunday.
The Chinese economy, the second largest in the world, grew by 5.2 percent last year (photo, Chinese President Xi Jinping)
China, Australia’s largest trading partner, is the biggest buyer of iron ore – until recently Australia’s most valuable export was used to make steel (pictured are Fortescue workers in Western Australia)
‘If that happens, it will be the slowest period of economic growth in China since the opening in the late 1970s.
“So we expect the Chinese economy to be a bit weaker for a while and that has clear consequences for us, for our economy, but also for our budget.”
China is the largest buyer of iron ore; Until recently, Australia’s most valuable export was used to produce steel.
The spot price of iron ore has fallen by 30 percent, from $142 per tonne in early January to $99 in early April.
The commodity had risen from $100 per tonne in September last year.
But the U.S. Treasury Department’s Mid-Year Economic and Fiscal Outlook, released in December, forecast that iron ore would be worth just $60 per tonne in September 2024, a further 39 percent decline from this month.
Next month’s 2024-2025 budget is expected to contain even more pessimistic forecasts.
A weaker iron ore price means less federal government royalty income from mining companies such as BHP, Rio Tinto and Fortescue.
“The iron ore price at the beginning of the year was around $130 per tonne,” Dr Chalmers said. “It bounced around in the low 90s.
Treasurer Jim Chalmers warns Australians to brace for China, Australia’s largest trading partner, with worst economic growth in 46 years
“To give you an idea of what that means for the budget, the difference between 130 plus and the low 90s is about $9 billion in revenues in the budget, about $35 billion in nominal economic activity, so you can see the decline to see? in the iron ore price.
“You can see why this is one of the reasons why we expect much, much smaller revenue increases in the budget than we’ve become accustomed to over the last few times.”
Iron ore was Australia’s most valuable export until 2021-2022.
But in 2022-2023 coal overtook coal to be worth $127.423 billion, compared with $124.101 billion for iron ore, figures from the Department of Foreign Affairs and Trade show.
Concerns about a slowing Chinese economy come just weeks after China removed 200 percent tariffs on Australian wine, imposed in 2020 in retaliation to former Prime Minister Scott Morrison’s call for an investigation into the origins of Covid.
His Labor successor Anthony Albanese visited Beijing in November to meet with Chinese President Xi Jinping in an effort to restore diplomatic ties.
The World Bank predicted in December that Chinese economic growth will slow to 4.5 percent in 2024.
China’s economy shrank by just 2.2 percent in 2020 during Covid lockdowns, but recovered to 8.4 percent in 2021.
An economic growth rate starting with a ‘4’ in 2024, 2025 and 2026 would be the slowest expansion in several years since the mid-1970s, before China opened to global trade in 1978.
But Dr. Chalmers said China’s growth rate is likely to be a ‘4’ for three years in a row – marking the slowest growth since the country opened to world trade in 1978 (pictured are Evergrande apartment towers in Nanjing in the east of China). )