Rise in iron ore places Australia in GDP rankings
“Our terms of trade have increased by almost 14% since mid-2020 and other countries just haven’t had that tailwind. It is our natural endowment of resources.
While Brazil has seen a similar decline in its terms of trade, also benefiting from a surge in the price of iron ore, its underlying economy has suffered as the country implements foreclosure measures in order to curb an aggressive second wave of COVID-19.
But Australia’s success in curbing the spread of COVID-19 and the lack of large-scale lockdowns has allowed it to take full advantage of dynamic commodity prices.
“Our fiscal situation has been so improved by the prices of iron ore. It’s a modern reinvention of “we are the lucky country”. It doesn’t impact the economy like it did in the 2000s, ”said Dr Joiner.
“It is an extraordinary tailwind for the economy and it is an extraordinary gift to the government which benefits from the revenues that we receive.”
Australia’s trade balance also remained strong until the start of the second quarter.
Australia’s trade surplus reached $ 8 billion on Thursday, as overall nominal exports rose 3%, driven by strong gains in the iron ore and coal subgroups.
“We believe commodity prices bode well for Australia’s external sector and will keep the current account strong despite the lack of services exports,” said Barclays chief economist Rahul Bajoria.
“A slowdown in Chinese infrastructure investment would weigh on Australian exports. However, rising global commodity prices are likely to alleviate some of this pressure. “
But while iron ore prices remain well above the government’s forecast of US $ 55 per tonne, Australia’s nominal GDP is expected to continue growing relative to other economies.
“We will continue to do well in terms of nominal GDP and we will grow,” said Dr Joiner.
Russia’s nominal GDP fell to $ 1.48 trillion in the fourth quarter of 2020 and likely weakened further in the first three months of the new year, meaning Australia could also be on the way to exceed it.
“A lot of countries are going to have this base effect [of economic growth] but Australia will have a disproportionate effect as long as the price of iron ore is high, ”said Dr Joiner.
“Right now it’s good for the country and it fuels the things that determine the standard of living.”
But like Barclays, Dr Joiner warned that the sharp rise in prices would not continue forever.
“We will not rely on this in the future as the basis of our standard of living,” he said.
“We still depend on our one client with whom we have an increasingly strained relationship. It will eventually fade. No one expects this cycle to last forever.