A report Wednesday on Australian consumer confidence showed a sharp fall, just a week after a prominent economist warned that economic problems in China may trigger the first economic downturn in Australia for almost a quarter century.
The Westpac Melbourne Institute Index of Consumer Sentiment dropped by 4.5% in September, and has stayed below 100 points for the past six months, meaning there are more pessimists about the economy than optimists.
Bill Evans, Westpac bank chief economist, said the survey showed a sharp deterioration in respondents' assessments of the economic outlook.
"Concerns around the medium-term outlook are likely to make households more cautious," Evans said.
The Australian newspaper reports today that benchmark iron ore for immediate delivery to the port of Tianjin in China was trading at $US83.20 a tonne - - its lowest level since September 23, 2009 on the back of falls in the order of 40% this year.
Last week a resources economist forecast that the iron ore price will continue to tumble as the Chinese economy begins "unravelling", causing significant issues for Australia.
Speaking at a conference on Thursday, Quentin Grafton, the federal government's former top resources forecaster, said the iron ore price was unlikely to recover quickly, leading to a painful downturn in the Australian economy in 2015.
"This isn't about doom and gloom, it's about looking at the risk and numbers. It's a clear and present danger," Grafton said.
He said the Reserve Bank of Australia should prepare for a difficult ride as the overpriced property market and high Aussie dollar created a challenging economic environment as coal and iron ore prices dropped.
China's current property market problems are directly linked to the Australian economy as Chinese residential property construction is a leading consumer of iron ore, which accounts for $1 of every $5 of Australian exports.
The Australian says today that Alberto Calderon, ex-BHP Billiton mining executive, has warned Australia faces a permanent fall in prices for its major - - exports of iron ore and coal as growth in the Chinese economy becomes increasingly driven by private consumption.
The newspaper says Australia’s top three exports, valued at more than A$100bn annually, are all under severe price pressure. At its peak, thermal coal was priced at above $US130 a tonne, but it has fallen to around $US66 a tonne for coal shipped through Newcastle. For coking coal, also used in steelmaking, the price has fallen from more than $US300 a tonne to $US110.
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