Iron ore bust the Australian economy

Recently, the international iron ore prices sharply lower, made the Australian economy “stressed out”, the country’s western Australia local debt credit is also under pressure, but in fact, a drop in iron ore prices, will not endanger the federal government currently enjoys the highest AAA sovereign rating.

ANZ bank (ANZ), an analyst at April 23 (Thursday) said in a report, there is no doubt that in the past year Australia finances is abate, and almost certainly will be in the may budget report expected budget deficits and national debt. But he points out that despite the fiscal outlook deteriorates, the net value of the forecast according to the country’s national debt is unlikely to achieve enough to threaten Australia’s sovereign credit rating.

Commodity shock

Due to weakening demand in China, Australia’s main export commodities prices fall, making Australia’s prospects have been a great impact, especially iron ore export prices fall.

In iron ore prices fell 50% over the past year, in April the New York commodities trading market for iron ore 62% contraction, April 23 (Thursday) China FECRF price was $49.30 a tonne, compared with the year before the purchase price at $108.50 a ton.

And the prospect of global metal prices and not from April 23 (Thursday) supported data, HSBC China manufacturing purchasing managers’ index (HSBCPMI) initial value is 49.2, since the March 49.6 values fell, below expectations. The index is lower than 50 means economic contraction. It also shows that China’s manufacturing industry in April further fell to its lowest level since one year

Western Australia,

The above situation, have made the standard &poor’s (S&P) report to western Australia on credit rating on negative watch list, suggests the possibility of rating changes to the surface.

Earlier this month, standard & poor’s report showed that iron ore prices will greatly weaken the royalty of western Australia, if states do not take the right action, such operating conditions are expected to maintain the fiscal deficit in the near future. Report predicts the 2018 fiscal year, the average debt burden will increase to 114% operating margins.

According to the standard & poor’s estimates, western Australia in 2014 with $6.03 billion ($4.67 billion) royalty, but likely dropped to $2.69 billion this year.

Impact on Australian iron ore slump economy, but its AAA rating is still intact

Solid sovereign ratings

But the standard & poor’s immediate lower rating of western Australia, shall not affect the country’s sovereign rating.

Anz, points out that the rating agencies have financial situation is optimistic to Australia. Said that while the standard & poor’s show that if the general government debt rose to more than 30% of the gross domestic product (GDP), Australia’s AAA rating will be threatened, but this has happened.

Anz bank, estimates that if iron ore prices fell to $35 per ton or so – that is, hodges (JoeHockey) hope will be cause for alarm – the official government forecast – will profit of $21.8 billion from swept through the central government. But at the same time, the bank estimates that iron ore prices will not fall so bleak.

Anz said, even if the situation worse at this point, the overall net government debt and no default — even close to the 30% level by standard & poor’s standards. In fact, based on these Numbers, the bank is expected to peak 2016-17 years total government debt is only 24% of GDP.