Australia: Land Down Under Could Soon Be Down and Out

Friday, 30 Mar 2012 01:24 PM

By Jacob Wolinsky

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Australia has enjoyed an economic windfall from high commodity prices in the last few years.

The country is a leader in the mining and mineral exports industry and demand from China has been a driving force in the industry’s growth. The resources boom has made the nation the one of the top exporters of gold, diamonds, zinc, aluminum, uranium, coal, iron ore and lead.

China has been fueling the huge growth in Australia’s mining.

Australia has one of the strongest economies in the developed world. The country also was far less affected than most other countries from the global financial crisis.

However all good things must come to an end …

China is slowing down; the question among economists is whether there will be a "hard" or "soft" landing.

China’s real estate bubble is starting to pop. If China has a hard landing, Australia will be the first country to feel the effects. Recently, a group of Australian businessman issued a plea to the government to pay more attention to the mining industry.

Australian exports to China have risen from $1 billion to a whopping $70 billion in the past 20 years. The country has become increasingly reliant in the Chinese economy. When bubbles burst, demand for commodities fall.

Australia does not seem to understand the upcoming storm. Recent projections from the industry said that the country would continue to produce record levels of iron ore throughout the decade. But almost all that iron ore is shipped to China, and used in construction. China, as its real estate boom slows, likely will not be building much.

On a positive note, only 2 percent of the work force is employed in the mining sector. However, once Chinese demand has fallen it will take some time for it to come back easily. Australia will have to find alternative sources of growth.

People in Eastern Australia have stated that the economy is in a recession. The only reason that Australia has experienced such strong growth is due to the large mining boom in the Western part of the country.

Australia also has its own housing bubble, which deserves its own article.

However, even if the bubble does not burst, Australia will be the first to feel the effects of the bursting of China’s bubble. Investors, economists, and individuals alike should pay attention to signs of a possible China slowing,  and look to Australia first, to see the first ripple effects.

© 2014 Moneynews. All rights reserved.

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