What a commodities slowdown looks like

Kudos to the BBC for sending a correspondent into the mining regions for some images which many Australians may be familiar.  An eerie silence in the background as Linda Yueh how long growth will last as China slows (here).

The highlight was the digger loading up $1 million of iron ore an hour.  How much longer will it continue to run profitably? 

Learning to live with a deficit...

Optimistic Australians are taking some getting used to the idea that the good times are over.  At least those in government.  While it has been pointed out that being in a small deficit is no huge deal for a country like Australia, the huge disappointment due to misaligned expectations is indicative of a ruling class which is out of touch with the economic mood - needing to tighten instead of dreaming up grand spending plans:

Collapsing revenue from lower company profits has blown a $12 billion hole in the federal budget this financial year, Prime Minister Julia Gillard will reveal on Monday...What she will categorise as a ''significant fiscal gap'' has forced a Hobson's choice on the government as it crafts the budget to be delivered on May 14: either trim or delay expensive recurrent programs, including the $14 billion disability insurance scheme and the $6 billion school education reforms or, hand down an even larger deficit in place of what only months ago was confidently forecast to be a small surplus (here)

And it is only down from here:

Australia's economy is the envy of the developed world but there is a question lurking at the back of economists' heads: when will the good times end?One prominent economist warns we could be in recession within two years once investment in the resources sector - the great driver of the economy for much of the past decade - drops off.....Meanwhile Dr Robert Gay, a former senior economist with the US Federal Reserve now working in the private sector with Fenwick Advisors, says Australia faces the prospect of a "perfect storm" of economic dangers in the not-too-distant future.....He warns a fall in commodity prices could be the catalyst for a particularly unpleasant economic downturn. (here)

Black gold to go to storage?

Rather than the Beijing residents, a few journos have noticed that the real victims of Beijing's smog or "airpocalypse" may in fact be Australian exporters as Chinese authorities look to clamp down on coal use.

....The first sign of change came last week when China’s State Council set a total primary energy consumption target (including renewable energy and transport fuel) ...[which] translates to annual growth in energy consumption of about 3.5 per cent over the next three years, down from 6.6 per cent a year in the five years to 2010...  Jiang Kejun, leader of the modelling team that advised the State Council on energy use ... said. “there’s no market for further development of energy-intensive industry.” If Jiang is right that will affect growth in our iron ore exports because steel making is energy intensive (here).

..."Within the (Chinese) thermal power sector there will be a greater reliance on natural gas," Prof Garnaut said....However huge reserves of gas in China and the US mean Australia will face more competition selling to China. (here)

RBA Rate Cuts...will come too late ?

....Translation: We cut rates four times between May and December last year, pulling the cash rate down from 4.25 per cent to 3 per cent. That’s a hefty reduction, and there's evidence that it has boosted activity. Even though this variable rate-based economy spreads the cut fairly quickly, however, we don't think we have seen the full impact of those earlier cuts yet.........

......The currency is high mainly because rates in the developed economies overseas are at or close to zero, however. Foreign money has been pouring in, to capture our still-relatively high fixed interest rates, and to hide from the northern hemiphere’s economic carnage. Another rate cut won’t change that dynamic materially. The $A is probably high until either the northern hemisphere begins growing strongly again, pushing rates there higher, or – a much worse ‘‘solution’’ – global growth stalls, killing australia’s resources economy in the process.....(here)


....AUD/USD is down in Tuesday trading, and has dropped below the 1.04 line. Although the Reserve Bank of Australia maintained its benchmark interest rate at 3.0%, market sentiment turned against the Australian dollar as the central bank left the door open to further cuts in the near future. (here)