Access Economics, the Canberra-based economic think-tank has forecast that iron ore and coking coal prices are set to halve this year and that Australia's prosperity will unwind quickly because of the slowing Chinese economy.
Access's latest Business Outlook says the "spectacular fall from grace" of commodity prices will slash tax revenues and cause businesses to shelve investment in infrastructure and project development. "Given what has happened to global steel prices, we expect coking coal and iron ore contract prices to be slaughtered come April, with steaming coal prices to also be hit hard," the report says, "it took four or five years for the good news to build on industrial commodity prices. It will take rather less than two years for the bad news to carve a very large and painful chunk from Australian incomes."
Interviewed on Sunday, Access director Chris Richardson said that global growth is slowing rapidly and that Australia's growth prospects are expected to quickly follow that lead. He expects the Australian Budget to fall into deficit this year.
"The global economy is in real trouble," said Mr Richardson.
"Four years of boom has collapsed in four months of chaos. That has all sorts of implications here, including for the Federal Budget which has very much been propped by the strong earnings of Australia's leading exports such as coal and iron ore."
Despite his gloomy assessment Mr Richardson said he didn't think the Australian government should stop doing what it's doing.
National Australian Bank has also said that it expects the Australian economy to fall into recession and has revised its forecast for 2008 Q4 to now show a contraction of 0.2%.
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