“Coronavirus is holding the economy hostage,” says David Taylor on abc.net.au. Australia has so far been one of the most successful at suppressing the spread of Covid-19, but a new flare-up in Melbourne has forced the country’s second-biggest city into a six-week lockdown.
Melbourne’s Victoria state accounts for 23% of Australian GDP, notes Shane Wright in The Sydney Morning Herald. The latest developments are hampering the recovery from a recession that was already set to be Australia’s worst since the 1930s. A government budget surplus has swiftly turned into the largest deficit on record.
A bit more luck?
The benchmark S&P/ASX 200 index has rallied by 32% since the March low, but remains down 10% on the year. The index is weighted towards the unfashionable financial and commodities sectors.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
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
However, the price of iron ore has rallied by more than 10% since the start of the year, while gold prices are up 16%. Commodities are “keeping Australia’s luck from running out”, says Clyde Russell in The Sydney Morning Herald. China accounts for two-thirds of the world’s seaborne iron-ore trade, so strong post-lockdown demand from the country’s blast furnaces is welcome. It’s not all good news for commodities: the energy price slump means that earnings from coal and liquefied natural gas (LNG) are likely to take a hit, although they could also enjoy a bounce if a global recovery takes hold.
The commodities bounce is another reminder of Australia’s enormous economic dependence on China. The Middle Kingdom accounts for about one-third of Australian exports, with Chinese consumers buying everything from metals to wine to holidays Down Under, writes Frances Mao for BBC.com. Yet with Beijing growing “more assertive and authoritarian”, Canberra increasingly finds itself caught between its economic interests and geopolitics.
Talk of a coming division of the world into two blocs centred on Washington and Beijing leaves Australia in a tight spot, says Su-Lin Tan for the South China Morning Post. The country hopes to straddle the divide, sticking with the US on security matters and Beijing on the economy, Alan Dupont of consultancy The Cognoscenti Group recently told a parliamentary inquiry. Yet worsening diplomatic relations with Beijing mean it may be forced to choose sides. “The odds favour a partial separation” from China.
Global decoupling and high levels of consumer debt are headwinds for the economy. On a cyclically-adjusted price/earnings ratio of 16.4 the stockmarket is neither strikingly cheap nor expensive. Commodity bulls may wish to investigate further, but there are likely to be better opportunities elsewhere.
-
Inheritance tax reforms: government urged to rethink curbs on rural reliefsMPs want the government to delay changes to inheritance rax reliefs for farmers
-
‘I’m among the thousands of millionaires leaving the UK – the new tax rules don’t make sense ’MoneyWeek spoke to a serial entrepreneur who is leaving the UK following the abolition of the non-dom tax status
-
What will the unravelling of US-China trade mean for the economy?What will a US-China decoupling mean for the global economy?
-
What's next for Liberal Mark Carney after Canadian election winMark Carney will remain as Canadian prime minister after winning the country's election, despite falling short of a majority.
-
Could Javier Milei bring Argentina's economy back to 'normal'?Javier Milei, president of Argentina, has been in office for more than 500 days. What will his leadership mean for the economy?
-
'Rachel Reeves' plan to force pension funds into UK assets won't work'Opinion Hustling pension fund cash into British assets sounds like a good idea. It would be better to make Britain an attractive place to invest, says Matthew Lynn
-
Out of America's shadow: Why Trump's tariff chaos may be good for non-US stocksOpinion Upending global investment and trade could benefit other countries at the expense of the US market, says Cris Sholto Heaton
-
Supersonic travel: How China could 'leapfrog' US and Europe's commercial aviation industryOpinion Innovation in commercial aviation has been stuck for 60 years. A commercial supersonic jet might be back on the market soon, but will China get there first?
-
How British businesses can tackle Trump's tariffsThe majority of British businesses are likely to take a hit from the chaos caused by Trump’s tariffs to reorder global trade. Companies in the firing line face some difficult decisions, says David Prosser
-
Trump wants to colonise Mars – will it happen?Donald Trump wants to plant the US flag on Mars. Could humans really live there?
