The news out of Australia isn’t all gloom. While growth figures stank last quarter, the nation is again being cushioned by its status as the developed world’s most China-dependent economy. Surging coal and iron ore prices have helped ease an erosion of national income Down Under and, together with a slower slide in mining investment, signal better prospects ahead.
Australia can thank its No. 1 trading partner, whose old economy is reviving as fiscal stimulus gets smokestacks billowing again. Traditional Chinese industries seen as proxies for growth, such as electricity and rail cargo, have collectively bounced back to the highest level in three years. The big unknown: the durability of a turnaround that’s ended a more than 50 percent drop in commodity prices between 2011 and 2016.
“This story is a big one for Australia,” said Paul Bloxham, chief Australia economist at HSBC Holdings Plc, who previously worked at the nation’s central bank. “We’ve talked about the commodity price rise as being a game-changer.”
Bloxham says the extended price slump since 2011 brought investment in new mines to a halt and as a result commodities have passed their trough. He estimates the rebound, which has seen coking coal prices rise 280 percent this year, could add about 2 percentage points to nominal gross domestic product Down Under.
Macquarie Bank Ltd. predicts Australia’s terms of trade — export prices relative to import prices — will climb 7 percent next year. That will help lift nominal GDP growth to more than 5 percent, which would be the best result since 2011, said James McIntyre, head of economic research in Sydney.
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