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Asia Economy Last Updated: Sep 10, 2014 - 12:06 PM

Australian consumer confidence slips as economy enters danger zone
By Michael Hennigan, Finfacts founder and editor
Sep 10, 2014 - 8:20 AM

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Mt Arthur is the largest individual coal production site in the New South Wales Hunter Valley. Photo: BHP Billiton

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.

And the Yale-trained professor of economics  said it would be wrong to pin economic hopes on the burgeoning LNG ­export industry because the gas was expensive, and there was a new supply challenge coming from Russia and the US.

Speaking last night at a Bloomberg forum in Melbourne, Calderon painted a bleak outlook for Australia’s biggest ­export earners of iron ore, metallurgical coal and thermal coal, with the first two steelmaking raw materials. “On one side, we will see almost no growth in Chinese demand for iron ore, even if there is some growth in steel,’’ Calderon said.

“On the other side, we are seeing a wall of iron ore supply being dropped in to the market by the large mining companies. It is not difficult to see why iron ore prices have collapsed and why they will go even lower.’’

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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