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Economist tips falling commodity prices to hit Australia hard

by Staff Reporter8 minute read
The Adviser

While Australia’s strong farming and resources sectors have enabled the economy to sidestep any sharp slowdown in economic growth the outlook for the coming months could be markedly different.

Writing in today’s Australian Financial Review, leading economist Ed Shann, said Australia’s better-than-most performance in 2008 would not last, predicting a sharp fall in Australian income in April when commodity prices fall.

“Australia will not emerge from recession in six months as some hope. Australia is about to suffer one of the sharpest drops in income in its history.”

Mr Shann said Australia’s downturn had been slowed only by the late reaction in China and that the country’s downturn would in fact be more protruded than many because of lower export prices and ongoing ramifications on real incomes, share prices, tax revenue and employment.

Mr Shann’s comments contrast starkly however to assurances from RBA governor Glenn Stevens late last year that Australia would weather the global economic downturn.

And echoing the sentiments of the RBA governor, just last week treasurer Wayne Swan said the dramatic reduction in interest rates combined with the government’s stimulus policies would provide a boost to the economy in the quarters ahead.

The government also forecast weak but steady national GDP growth of 2.25 per cent for the 2009/10 financial year in its mid-year economic and fiscal outlook in November.

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