The mining boom that fuelled growth over the last decade
and cushioned the economy from the worst of the Global Financial
Crisis has well and truly ended.
Increasing global supply coupled with a sharp slowdown in demand
from China has seen the iron ore price fall by over 50% to
US$63/tonne, its lowest level since 2009. Coal has also fallen
sharply and oil is 35% lower. The terms of trade are now expected
to fall by 13.5% in 2014/15, the largest decline since records
began in 1959.
Unfortunately lower prices are likely to stay this way for some
time. This is because China's residential construction boom,
the single largest consumer of steel, is beginning to unravel.
Property prices have begun to fall on the back of rampant
oversupply. As property developers fail, non-performing loans will
escalate, weighing on the banking system. A more pronounced
slowdown in China appears inevitable.
Of course much lower commodity prices have wider ramifications.
Only the lowest cost producers can survive should prices stabilise
at or around current levels for any prolonged period of time. If
this happens then higher cost producers will collapse and/or
production will be curtailed. Jobs will be lost and incomes will
fall, both of which will detract from growth. While the fall in the
oil price is widely a positive for a net importer such as
Australia, it is a negative for our LNG industry, which is forecast
to become our second largest export in coming years.
As a result of the much lower terms of trade and lower wages
growth, tax receipts have been revised down by over $31.6 billion.
The underlying budget deficit is now expected to exceed $40 billion
this financial year. While the incumbent Government continues to
blame its predecessor for the budgetary woes, the reality is that
this is simply the inevitable outcome from short sighted political
pork-barrelling during the boom times. It is easy to cut personal
tax rates, lift tax-free thresholds and abolish tax on
superannuation pensions when times are good, but these choices were
never going to be sustainable. By definition, any boom will always
Nevertheless, there are benefits from the plunging terms of
trade. The Australian dollar is expected to continue to fall which
will enhance the competitiveness of our exports and import
competing industries. In addition, interest rates are likely to
stay lower for longer. This should continue to provide support for
asset prices (property and shares) and non-mining investment, which
in turn should assist consumer spending.
The outlook for the Australian economy has deteriorated with the
sharp fall in commodity prices. The stimulative impact of low
interest rates coupled with positive momentum in residential
construction should remain broadly supportive of growth over the
next 12 months, albeit at below trend levels (about 2.5% p.a.).
An actuarial review of the Invensys Australia Superannuation Fund showed it to be in surplus to the tune of $189.2 million. In mid 2003, the Invensys Group proposed to the trustee that the surplus be repatriated to the principal employer in the group.
Lenders in New South Wales breathed a sigh of relief earlier this month when the Supreme Court ruled in Bank of Western Australia Ltd v. Primanzon  NSWSC 862 that two part-time commercial property investors could not claim relief under the Contracts Review Act 1980 (NSW) because the loans advanced to them were entered into in the course of a trade, business or profession carried on by them.
A key aspect of an innovation culture is keeping it active at all levels of management, from teams to board meetings.
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