The chilling economic warning about China should be read by every Australian

Treasurer Jim Chalmers has warned that Australia’s biggest trading partner China could experience its worst economic growth in almost 50 years.

The Chinese economy, the world’s second largest, grew by 5.2 per cent last year.

But Dr. Chalmers said China’s growth rate was likely to have a ‘four’ ahead of it for three consecutive years – marking the slowest multi-year expansion since the era before the country opened up to world trade in 1978.

“What we’re looking at here in the current forecasts, which will be finalized between now and the budget itself, is four-ahead growth for three consecutive years in China,” he told the ABC’s Insiders program on Sunday.

China, Australia’s biggest trading partner, is the biggest customer of iron ore – until recently Australia’s most valuable export, used to make steel (pictured are Fortescue workers in Western Australia)

‘If that happens, it will be the slowest period of economic growth in China since they started opening up in the late 1970s.

“So we expect the Chinese economy to be a bit weaker for a bit longer, and that has obvious implications for us, for our economy, but also for our budget.”

China is the biggest customer of iron ore – until recently Australia’s most valuable export, used to make steel.

The spot price of iron ore has fallen by 30 percent from USD 142 per ton at the beginning of January to 99 USD at the beginning of April.

The commodity had risen from USD 100 per tonnes in September last year.

But the Treasury’s Mid-Year Economic and Fiscal Outlook, released in December, predicted iron ore would be worth just $60 a barrel. tonnes in September 2024 – marking another 39 per cent drop from this month.

Next month’s budget for 2024-25 is expected to have even more pessimistic forecasts.

A weaker iron ore price means less income from federal government royalties from mining companies such as BHP, Rio Tinto and Fortescue.

“The iron ore price was around, was more than $130 per ton at the beginning of the year,” said Dr. Chalmers. ‘It has bounced around in the low 90s.

Treasurer Jim Chalmers warns Australians to brace for China – Australia’s biggest trading partner – worst economic growth in 46 years

‘To give you a sense of what that means for the budget, the difference between 130 plus and in the low 90s is something like $9 billion in revenue in the budget, something like $35 billion in nominal economic activity, so you can see the drop in the iron ore price.

‘You can see why this is one of the reasons why we expect much, much less revenue upgrades in the budget than we’ve been used to the past couple of times.’

Iron ore was Australia’s most valuable export until 2021-22.

But in 2022-23, coal overtook it to be worth $127.423 billion, compared with $124.101 billion for iron ore, figures from the Department of Foreign Affairs and Trade showed.

The fears of a slowing Chinese economy come just weeks after China scrapped the 200 per cent tariff on Australian wine that had been imposed in 2020 in retaliation for former prime minister Scott Morrison’s call for an investigation into the origins of Covid.

His Labor successor Anthony Albanese visited Beijing in November to meet Chinese President Xi Jinping in a bid to mend diplomatic ties.

The World Bank predicted in December that Chinese economic growth would slow to 4.5 percent in 2024.

China’s economy shrank by just 2.2 percent in 2020 during the Covid lockdowns, but rebounded to 8.4 percent in 2021.

An economic growth rate starting with a ‘4’ in 2024, 2025 and 2026 would be the slowest multi-year expansion since the mid-1970s, before China opened up to world trade in 1978.

But Dr. Chalmers said China’s growth rate is likely to have a ‘4’ ahead of it for three consecutive years – marking the slowest expansion since it opened up to world trade in 1978 (pictured is the Evergrande apartment towers in Nanjing in eastern China)