China’s slowdown could hamper Australia’s recovery from COVID-19
China’s economic slowdown has been identified as one of the major threats to Australia’s recovery out of COVID-19.
Official data to be released on Monday is expected to show that Chinese economic growth slowed to its lowest rate in more than a year in the December quarter, dragged back by a combination of a property market slump, electricity shortages and hardline measures to stamp out coronavirus cases that have curbed consumer spending.
Reduced growth would translate into lower demand for China from WA commodities, notably iron ore, as Australia seeks to break free of the worst of the pandemic in 2022.
Deloitte Access Economics’ latest quarterly business outlook, also out Monday, warns that “China’s economy has softened in ways that particularly challenge” Australia.
The consultancy said that while high vaccination rates had Australia “match fit for fighting COVID”, China’s virus-elimination strategy “could result in 2022 making a mess of China’s economy, with a range of blowback impacts on Australia’s economy as well”.
However, Deloitte has taken a largely positive view of the year ahead for Australia, despite joining others in expressing caution around WA’s reopening.
“We’re well vaccinated, we’ve got the hang of juggling lockdowns and other COVID challenges, and we’re cashed up with dollars left over from when the pandemic meant that money couldn’t be readily spent,” it said. “That combination spells resilience and recovery.”
The consultancy sees national economic growth of 3.6 per cent in calendar 2022, down from last year’s 4.3 per cent as Australia rebounded after the first lockdowns a year earlier. The foreecast assumes household spending rising 6.4 per cent and business investment improving 5.2 per cent.
“Supply snarls have given businesses more pricing power than they’ve had in decades. Add higher energy prices and a weaker Australian dollar, and consumer prices have spiked. But so far prices have grown faster than wages,” it said.
While anecdotal evidence suggests wage pressures are rising sharply in WA, creating concerns for employers chasing staff to fill growing vacancies, Deloitte said there was “less reason to believe wages will accelerate fast in Australia”.
However, it sees WA’s average weekly earnings rising to 3.1 per cent next financial year, against forecast national wage growth of 2.4 per cent in 2022, noting the State’s resources industry had found it particularly tough to secure skilled labour.
“Tightness in job markets is yet to translate into substantial wage growth” in WA, it said.
“(WA) wage growth has trended to a five-year high, led by gains in the private sector, but it is still miles off the 5 per cent to 6 per cent growth observed during the last mining boom.”
But it cautioned that “yet there could be significant movement on wages through 2022, with enterprise agreements pegged to local CPI picking up in line with consumer prices”.
The Chinese data is forecast to reveal that the country’s economy probably expanded 3.3 per cent in the final three months of last year, the slowest pace since the second quarter of 2020.
December data for industrial production, retail sales and investment, also due Monday, are also expected to be weaker.
The downturn in the latter part of 2021 is a sharp contrast to the first half, when the Chinese economy was rebounding from its pandemic slump and policy makers were paring back stimulus to curb financial risks. Full-year growth is likely to come in at about 8 per cent.
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