What surging commodity prices mean for the Aussie economy

Wed, 13 Apr 2016  |  

This article first appeared on the Yahoo7 Website at this address: https://au.finance.yahoo.com/news/what-surging-commodity-prices-mean-for-the-aussie-economy-234024921.html 

-----------------------------------------------

What surging commodity prices mean for the Aussie economy

If you blinked you might have missed it. Commodity prices are surging and this is great news for the Australian economy.

Back in January, when irrational markets and some new year fear was leading some economists to recommend “sell everything”, commodity prices crashed to their lowest levels in about a decade.
With the global economy expanding at a decent, if not spectacular pace, and many of the mining companies scaling back output which is dampening fresh supply, it was always inevitable that merchants of gloom would be wrong and prices would rebound.

To be sure, commodity prices are well down on the peak levels in the frenzy of the commodity price boom, but some of the price increases from the early 2016 lows are spectacular.

In US dollar terms, the price of oil has risen 55 per cent; iron ore is up almost 60 per cent; gold up 18 per cent; copper up 10 per cent; even the beleaguered coal price is up around 15 per cent. These are impressive increases and are well above the levels assumed by Treasury in the Mid Year Economic and Fiscal Outlook and in the RBA’s most recent forecasts.

High commodity prices, if sustained, will help most mining companies return to decent profit and incomes in the economy will riser. It will also halt the phenomenon of mine closures and capacity reductions which is clearly a positive for the economy more generally.

If, as is most likely, commodity prices continue to move higher in the months ahead, albeit at a less rapid speed than the period since January, the boost to the economy will extend to an upturn in business investment and employment.

Vitally important for the commodity price cycle will be the performance of the global economy which on most recent readings, is doing well. To be sure, global GDP growth in the 3.25 to 3.5 per cent range for both 2016 and 2017 is not all that strong, but it is sufficient to underpin growth in demand for commodities which in itself helps explain the recent price rebound.

As drivers of commodity demand, it is encouraging to see the Chinese economy growing at around 6.5 per cent with India above 7 per cent. In terms of the large industrialised economies, the Eurozone is expanding moderately, the US is on track for another year of 2.5 per cent growth and even Japan is set to register some growth.

If commodity prices were to rise at even half the recent pace over the remained of 2016, the gloom and pessimism that has framed a lot of the economic discussion of recent years will quickly be superceded by issues of a strong economy, the rekindling of inflation pressures, a stronger Australian dollar and the need for interest rate hikes.

Australia is not at this point yet. But with every uptick in commodity prices, that day is getting closer.

comments powered by Disqus

THE LATEST FROM THE KOUK

The misplaced objective of the government of delivering a surplus, come hell or high water, has gone up in smoke

Tue, 07 Jan 2020

This article first appeared on the Yahoo Finance web site at this link: https://au.finance.yahoo.com/news/the-governments-test-in-2020-220310427.html   

---------------------------- 

The misplaced objective of the government of delivering a surplus, come hell or high water, has gone up in smoke

For many people, the cost of the fires is immeasurable. 

Or irrelevant. 

They have lost loved ones, precious possessions, businesses and dreams and for these people, what lies ahead is bleak.

Life has changed forever.

As the fires continue to ravage through huge tracts of land, destroying yet more houses, more property, incinerating livestock herds, hundreds of millions of wildlife, birds and burning millions of hectares of forests, it is important to think about the plans for what lies ahead.

The rebuilding task will be huge.

Several thousands of houses, commercial buildings and infrastructure will require billions of dollars and thousands of workers to rebuild. Then there are the furniture and fittings for these buildings – carpets, fridges, washing machines, clothes, lounges, dining tables, TVs and the like will be purchased to restock.

Then there are the thousands of cars and other machinery and equipment that will need to be replaced. 

What's ahead for the Australian economy and markets in 2020

Thu, 02 Jan 2020

What's ahead for the Australian economy and markets in 2020

Happy New Year!

2020 will be a year where Australia’s annual GDP will exceed $2 trillion, our population will get very close to 26 million people and we will clock up 29 years with no recession.

It is also a year where the economy will be a dominant issue for policy makers, will drive what happens to interest rates, will help drive investment returns and will feed into the well-being of the Australian community. 

2020 kicks off with relatively good news in terms of economic growth, even though the labour market is likely to remain weak, with wages growth struggling to lift and inflation remaining below the RBA’s 2 to 3 per cent target. The Reserve Bank may have one more interest rate cut in its kit bag, but by year end, the market is likely to price in interest rate increases, albeit modestly.

The ASX, which had a great 2019 is set to be flatten out, in part driven by the change in the interest rate outlook, but it should get a boost from better news on housing and household spending.

In terms of the specifics, I have broken down the 2020 outlook into a range of categories and given a broad explanation on the issues underpinning the themes outlined.

GDP Growth

It’s a positive outlook. A pick-up in GDP growth from the current 1.7 per cent annual rate is unfolding, with the only real issue is the extent of the acceleration.