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Australia potential Trade War winner - Deloitte

Australia potential Trade War winner - Deloitte

(11 July 2019 – Australia) The latest Deloitte quarterly business outlook advises that the US-China trade war, characterised by escalating tariffs and protectionism, was negatively impacting global growth however China’s response offers a possible boost to Australia.

The slowdown in Australian growth was not as large as expected and while the boost from China is relatively artificial and short term in nature, Deloitte believes it would last for a while and likely longer than the market expects.

The outlook suggested mining, healthcare and education sectors were performing well. “We’d been worried that the growth in education may falter, but the falling Australian dollar will gradually provide some renewed tailwinds aided by Indian student growth picking up where Chinese student growth tails off. And global commodity prices are bigger than Christmas” stated Deloitte Access Economics partner Chris Richardson.

“The drought and the downturn in housing prices are hurting the Australian economy, but the global slowdown has so far been good news for Australia. China is responding to its slowdown with stimulus, which has pushed iron ore and coal prices up. This is the first ever global slowdown in which the world has actually given Australia a pay rise instead of a pay cut” stated Mr Richardson. While the outlook for Australian business investment was more upbeat than the global economy, Mr Richardson noted the long-awaited non-mining lead recovery is encountering challenges. “In particular, capacity utilisation has faded alongside the pace of Australian growth over the last year or so” he added.

Analysts broadly expect Australia would be at a disadvantage in an all-out global trade war, particularly with the risk of a slowing Chinese economy. Following the delivery of two official cash rate cuts to a record low of one percent in 2019, Reserve Bank of Australia (RBA) governor Philip Lowe noted low inflation was a sign the economy was not at full capacity. “The next move from China is likely to be more stimulus, not less. Our assessment is that despite the Australian economy having performed reasonably well over recent years, there is still a fair degree of spare capacity in the economy. It is both possible and desirable to reduce that spare capacity.”

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