Banks and financial institutions issued a series of reports this week, predicting deteriorating prospects for the Australian economy. These warnings underscore the demands being placed by the financial elite on the new Prime Minister Malcolm Turnbull, to push through deep cuts to social spending and workers’ wages and conditions.
The Australia and New Zealand Bank became the first of the country’s four major banks to forecast that the Reserve Bank would be forced next year to further cut official interest rates, already at record lows, because of the slump being produced by recessionary trends worldwide, China’s slowdown and falling export commodity prices, WSWS reported.
ANZ Bank economists Warren Hogan and Justin Fabo said the central bank would have to lower the benchmark rate from 2 to 1.5% because mining investment would continue to fall, potentially pushing up unemployment. They predicted that the current housing construction boom in Sydney and Melbourne, which has prevented the economy as a whole from entering a recession, would dry up by the end of 2015, compounding these pressures.
“Risks to growth in Australia’s major trading partners in Asia, and Australia’s terms of trade, are skewed to the downside, with China in particular facing several significant challenges,” Hogan and Fabo said.
Previously, the ANZ economists forecasted that the Reserve Bank had finished cutting rates and would keep them on hold at 2% throughout the rest of this year and 2016. But Hogan warned that global growth was falling below expectations “despite very accommodative monetary policy globally”—referring to record low interest rates and the pumping of trillions of dollars into the financial markets via “quantitative easing.”
Hogan pointedly questioned the durability of the reported boost in consumer confidence following Tony Abbott’s removal as prime minister, saying “it may not be enough to move the dial on the economy in the next 12 to 18 months.” He urged Turnbull’s government to “present a vision for Australia’s economy” and outline plans for a return to a budget surplus.
Writing in the Australian Financial Review, Jacob Greber underlined the implications for the Turnbull government. “The bleak forecast—which implies the number of Australians out of work will continue to climb next year from about 800,000—increases the looming budget squeeze on Turnbull and his new Treasurer Scott Morrison.”
Export Earners to Suffer
Earlier in the week, ANZ also lowered its predictions for prices for two of Australian capitalism’s biggest export earners—iron ore and coking coal—because of the downturn in China, Australia’s largest market. The bank warned that these prices, which have roughly halved over the past two years, could fall further and remain depressed for some years.
Iron ore may average about $52 a ton next year, 5.3% lower than previously forecast, and $54 in 2017, a reduction of 10.5%, ANZ head of commodity research Mark Pervan said in a report on Monday. The outlook for coking coal, used in steel production, was pared back by as much as 13.5%.
“Lower Chinese growth forecasts have prompted us to lower our steel-demand outlook,” Pervan stated. “In iron ore in particular, we see little upside in prices for the next few years.”
Previously, the ANZ predicted that China’s steel consumption would peak in 2020, but now thinks that it already peaked last year. Credit Suisse Group AG also forecast a 9.5% drop in steel production between last year and 2018, from 823 million tons to 745 million tons.
These trends have major consequences for global steel prices as China seeks to export its excess. Chinese firms were expected to export 107 million tons this year, the ANZ forecast.
The Australian economy’s vulnerability to China’s slowdown was highlighted on Wednesday when the main Australian stock exchange index fell below 5,000 points for the first time in two years, wiping about $30 billion off share values, after another poor Chinese manufacturing outlook.
Last week, the International Monetary Fund said its research indicated that Australia would be the worst-hit advanced economy from slowing Chinese investment growth.
