Posted on 24 Oct 2008
As a consequence, the federal government may need to run a deficit budget temporarily, Access Economics director Chris Richardson said.
"The problem for Australia, as markets fall, share markets, property values fall in China and its construction weakens off, that's weakening the demand for steel," he told ABC Radio on Friday.
"
Mr Richardson, speaking following the launch of the Access Economics quarterly business outlook, said spot steel prices were at US$1,200 a tonne in July, but had slumped to US$255 a tonne.
That suggested a notable fall in prices was likely when Australian suppliers renegotiated contracts.
Such a fall would not hurt growth rates as much as it would hurt income.
Rising commodity prices had pushed up the Australian dollar, lifted the rate of growth and company profits and commonwealth revenues, Mr Richardson said.
"Our problem is that at least some of that is about to unwind.
"We have already seen the weaker Australian dollar. I suspect that the next step is that as commodity prices fall, profits in
"Eventually, not straight away because it will take time, engineering and construction demand will weaken and this will hurt the federal budget."
How much was a matter for argument, but it might be that, temporarily, the government would need to dip into deficit to support growth, Mr Richardson said.
The Rudd government has already spent nearly half its current budget surplus of $22.6 billion on a economic stimulus package to head off a likely economic slowdown.
"You cannot say for sure that we won't have a recession but best guess is we will still manage to avoid it, partly aided by the government's package right now and partly aided by the fact that it will take time for some of the negatives for business spending to come through," Mr Richardson said.
