Treasurer Jim Chalmers has warned that China, Australia’s largest trading partner, could experience its worst economic growth in almost 50 years.
China’s economy, the world’s second largest, grew 5.2 percent last year.
But Dr Chalmers said China’s pace of growth would likely be a “four” ahead for three consecutive years, marking the slowest expansion in several years since the era before the country opened up to global trade in 1978.
“What we are seeing here in the current forecasts that will be finalized between now and the Budget itself is four-year growth 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 (pictured, Chinese President Xi Jinping)
China, Australia’s largest trading partner, is the largest customer of iron ore; Until recently, Australia’s most valuable export was used to make steel (pictured, Fortescue workers in Western Australia).
“If that happens, it will be the slowest period of economic growth in China since they began to open up in the late 1970s.
“So we expect the Chinese economy to weaken a little bit for a while longer and that has obvious consequences for us, for our economy, but also for our budget.”
China is the largest customer of iron ore; Until recently, Australia’s most valuable export was used to make steel.
The spot price of iron ore has plunged 30 percent, from $142 a ton in early January to $99 in early April.
The raw material had risen from $100 a ton in September last year.
But the Treasury’s Mid-Year Economic and Fiscal Outlook, released in December, predicted iron ore would be worth just $60 a tonne by September 2024, marking another 39 percent drop from this month.
Next month’s budget for 2024-25 is expected to have 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 price of iron ore was around $130 a tonne at the beginning of the year,” Dr Chalmers said. ‘It’s been bouncing around 90 degrees.
Treasurer Jim Chalmers is warning Australians to prepare for China, Australia’s biggest trading partner, to have the worst economic growth in 46 years.
‘To give you an idea of what that means for the budget, the difference between 130 and above and the low 90s is something like $9 billion in revenue in the budget, something like $35 billion in nominal economic activity, so, Can you see the fall? in the price of iron ore.
“You can see why this is one of the reasons we expect much, much smaller revenue improvements in the budget than we’ve become accustomed to in recent times.”
Iron ore was, until 2021-22, Australia’s most valuable export.
But in 2022-23, coal surpassed it and was worth $127.423 billion, compared to $124.101 billion for iron ore, Department of Foreign Affairs and Trade figures showed.
Fears about a slowdown in the Chinese economy are being publicized just weeks after China removed 200 percent tariffs on Australian wine that had been imposed in 2020 in retaliation for former Prime Minister Scott Morrison’s call for a investigation into the origins of Covid.
His Labor successor, Anthony Albanese, visited Beijing in November to meet Chinese President Xi Jinping in a bid to repair diplomatic relations.
In December, the World Bank forecast that Chinese economic growth would slow to 4.5 percent in 2024.
China’s economy contracted just 2.2 percent in 2020 during Covid lockdowns, but recovered to 8.4 percent in 2021.
An economic growth pace 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 world trade in 1978.
But Dr Chalmers said China’s growth rate would likely be a ‘4’ ahead for three consecutive years, marking the slowest expansion since it opened to world trade in 1978 (pictured, towers of Evergrande apartments in Nanjing, eastern China). )