There are worries on the economic front for 2016

It’s been a shaky start to 2016 with the markets and commodity prices on the slide, IMF concerns about the international economy and fragility in China.

Remember when Malcolm Turnbull said “there has never been a more exciting time to be an Australian” shortly after taking over as Prime Minister?

He was talking up the national future telling us that things are good, the national prospects are high and we are on the cusp of cashing in on a new era of hi-tech-based prosperity.

A few months on things are not looking so flash. Despite the prime ministerial optimism, many Australians are noticing a lot of bad economic news and starting to fear the future picture is not as bright as it has been painted.

In fact, the first few weeks of 2016 have been positively pessimistic on a number of fronts.


The Share Market

Australian shares have been clobbered big time in January, shaking the confidence of investors and making consumers wary of opening their wallets.

The overall market indicator, the All Ordinaries Index, is down 7.7 per cent to 4896 points while the Financials index is down 10 per cent to 6447 points.

The real red ink has been flowing in the resources and energy sectors, however, with the Energy index down 21 per cent to 6771 points and the Minerals index down 14 per cent to 1644 points.


Australia’s wealth is heavily dependent on commodity exports with sales of iron ore, coal, wheat and natural gas and the like providing over 50 per cent of our foreign earnings.


The commodity markets have been on the skids since peaking in 2011 and have really slumped in the past two years. Iron ore, our No.1 export, is down from $US120 a tonne two years ago to around $US40 now.

Prices for thermal coal (for power generation) and coking coal (for steelmaking) are down 63 per cent and 47 per cent in the past two years respectively and oil prices have collapsed from $US60 a barrel last May to below $US30 today.

While lower oil prices might be good for motorists, with prices at the bowser falling below $1 per litre in places, they are bad for gas producers who have spent hundreds of billions on new export facilities.

They face a profit squeeze as gas prices are set in relation to oil prices.

All that means is that Australia’s terms of trade, our relative position in the export markets, have fallen from an index level of 120 four years ago to close to 80 now as export prices collapse.


Superannuation funds are off to a grim start this year as a result of the hard times on the markets. Returns have fallen by 3.8 per cent so far in January due to market turmoil.

While this situation may improve if the markets turn it appears to indicate that returns won’t match recent years. The median balanced option for super funds delivered 5.6 per cent returns in 2015, 8.1 per cent in 2014 and 16.3 per cent in 2013.



The world’s second-largest economy and Australia’s largest trading partner is a worry with its economy weakening. Its fourth-quarter GDP growth fell to 6.8 per cent, the lowest in 25 years as factory orders slowed, stock markets fell heavily, fixed investment was weaker than expected and the housing market suffers from overbuilding.

While China watchers are not surprised that its economy is slowing as it shifts from a focus on heavy industry to consumption, some fear that the real situation is being masked by the government and the country may be headed for a hard landing.

That would be bad news for Australian exports and for the US government finances because China buys lots of US government debt. US companies are already reporting lower profits as a result of China’s weakness.

Weak World Economic Outlook

The International Monetary Fund is feeling a little pessimistic. It has cut its global growth forecasts for the third time in less than a year, blaming the slowdown in China’s soft trade and weak commodity prices that are hammering Brazil and other emerging markets.

The Fund says the world economy will grow at 3.4 per cent in 2016 and 3.6 per cent in 2017, which is 0.2 percentage points lower than previous estimates for both years. It also called on governments to look at ways of boosting short-term demand.

“We don’t see a big change in the fundamentals in China compared to what we saw six months ago, but the markets are certainly very spooked by small events there that they find hard to interpret,” IMF senior economist Maurice Obstfeld said in a videotaped statement.

There is also concern about very low levels of growth in Europe and Japan and worries that the American recovery is not as robust as was thought a few months ago.

The Aussie Dollar


The local currency has fallen around four US cents to US69c so far in January which is another indication of the declining confidence driven by commodity weakness. While the lower currency should make Australian exports more affordable, it also makes it harder for Australians to travel and increases the costs of capital equipment industry needs to expand.

It should give a welcome boost to education and inbound tourism which are important employers and foreign currency earners for Australia.

Consumer Confidence

Consumer confidence has fallen to the lowest level since Malcolm Turnbull took over as Prime Minister from Tony Abbott, according to the Westpac – Melbourne Institute Index of Consumer Sentiment.

According to the index, confidence fell 3.5 per cent to 97.3 in January, its lowest point since September 2015 and is now below the level where optimists equal pessimists. Consumers were less confident about family finances than a year earlier but overall confidence is higher.


Commsec chief economist Craig James expects growth to run at 2.75 per cent during 2016 and says last year’s final growth figure should come in at 2.5 per cent. Mr James says the economy is not in that bad a shape with unemployment remaining below six per cent.


While PM Turnbull is hitching Australia’s star to the glittering hi-tech world we are not developing the workforce necessary to take us there. While computer coding skills are mandatory in many European education systems, Australian schools have a choice in whether they provide them and many choose not to.

Also, less than 20 per cent of Aussies have an interest in further studies in the science and engineering areas that will make them employable in hi-tech and young Australians are among the least prepared among developed nations to participate in the new economy.

Source: ABC News

Leave a Reply

Your email address will not be published. Required fields are marked *