Australia’s economy bounces back
Australia’s economy endured its first recession in 29 years in the first half of 2020. But things are now looking up.
![Tractor in a vineyard](https://cdn.mos.cms.futurecdn.net/HAmwYB9DmpiJr2R7s9GeZ3-415-80.jpg)
Prolonged lockdowns, a trade war and the first recession in a generation have made 2020 an uncharacteristically gloomy year down under. Australia’s economy endured its first recession in 29 years in the first half. Yet things are looking up. A consumer-led rebound drove a 3.3% GDP gain in the third quarter, the biggest quarterly jump since 1976. Aggressive suppression of the virus and fiscal support mean that consumers’ sentiment is now at a ten-year high, says Swati Pandey for Reuters.
A worsening diplomatic and trade dispute has sparked debate about Australia’s economic dependence on China. Beijing has slapped tariffs and other restrictions on Australian wine, wheat, barley, beef and lobster exports among others this year. This week brought media reports that Australian coal imports are now being heavily restricted by China.
China needs iron ore
Over a third of Australian export dollars come from selling to China, note Rod Tyers and Yixiao Zhou on theconversation.com. While mineral exports make up just 1% of national income, they are an important economic foundation for local service industries and keep the Australian dollar strong. Tyers and Zhou estimate that a 95% reduction in Australia-China trade would lead to a 6% hit to GDP and a 14% reduction in real disposable income per capita as a weaker currency sent import prices soaring. For goods such as wine, coal and beef, Australia is selling into a “buyers’ market”, says Elizabeth Knight for The Sydney Morning Herald. China can switch international suppliers relatively easily. Yet there is one crucial exception: iron ore, which has conspicuously not been subject to Chinese trade restrictions. The steel-making ingredient is vital to the country’s infrastructure-led rebound, but supply problems in Brazil leave China with few other sources.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
![https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg](https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748-320-80.jpg)
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Australia exports about A$80bn (£45bn)-worth of iron ore to China each year. The trade uncertainty has sent iron-ore prices soaring 60% over the past year, delivering a windfall to Australian miners and the taxman. That is “offsetting the economic punishment” that China is trying to “inflict on Australia” through tariffs.
The buoyant iron-ore price has helped send the Australian dollar up to a two-year high. The benchmark S&P/ASX 200 stockmarket index remains marginally down this year, but has rallied by 45% since March.
The index is heavily weighted towards commodities and bank stocks, with the latter enjoying strong gains of late on hopes of a vaccine-led rebound, says Shane Walton for ig.com. Macquarie Asset Management thinks the Aussie dollar has further room to rise as commodities enter a bull market. The bank also says local stocks should gain from a global upswing. If “vaccines work as claimed… ASX stocks could rise over 10% in 2021”.
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
-
How working part-time in retirement could boost your pension by £87,000
Easing into retirement by working a few days a week could add thousands to your pension pot. We crunch the figures to see how working part-time can boost your pension po
By Ruth Emery Published
-
Easyjet on track for ‘record summer’ - should you invest in airline stocks?
Easyjet reported headline pre-tax profits of £236 million for the three months to June 30 - up by £33 million on a year ago
By Chris Newlands Published
-
What does a weak yen mean for Japanese stocks?
The Japanese yen has hit its lowest level against the US Dollar since 1986. What does it mean for its stock market?
By Alex Rankine Published
-
Revolut founder Nik Storonsky cashes in – what's next for the fintech billionaire?
Nik Storonsky has shaken up the banking industry with Revolut. He is now preparing a new project that could do the same to the venture capital sector
By Jane Lewis Published
-
Is local production making a comeback?
Companies return production closer to home and shorten their supply chains due to the pandemic and geopolitical turmoil. How should investors react?
By Dr Matthew Partridge Published
-
French election: an unexpected win for the left-wing
The snap French election delivered a stalemate. What does this mean for the country's stability?
By Dr Matthew Partridge Published
-
The rise and fall of Simon Sadler: Blackpool FC saviour and businessman
Simon Sadler, who hails from Blackpool, rose to become the envy of Asia’s financial scene and returned in triumph to rescue the local football club. Is his “long hot streak” now over?
By Jane Lewis Published
-
Indian stocks bounce back – should you invest?
Indian stocks make a comeback after the country's general election. Should you invest?
By Alex Rankine Published
-
Is online anonymity a necessity for economic and political freedom?
Online anonymity can be abused by trolls, but it remains central to our economic and political freedom, says Dominic Frisby
By Dominic Frisby Published
-
India election 2024: Modi loses majority
The India election results are in and Modi suffered a big political setback. What does the future hold for the country?
By Dr Matthew Partridge Published