As China threatened to bring down Australia’s booming economy it reached a huge milestone that makes it the envy of most of the world.
Australia can thank the booming price of its biggest export iron ore, which currently brings in $136 billion a year, for thrusting the economy ahead of Brazil and bringing it close to Russia in a little over 12 months since the covid-19 pandemic began.
The Aussie economy has drawn admiration around the globe as it bounced back from the downturn last year, outperforming most countries.
Australia’s gross domestic product, a measure of the money value of goods and services produced, climbed to $US1.43 trillion ($A1.86 trillion), while Brazil’s dropped to $US1.42 trillion ($A1.83 trillion), according to Bloomberg data.
Soaring prices for iron ore have been the main driver for Australia’s boom as it outpaced Brazil’s economy for the first time in 25 years.
“The Australian economy has done exceptionally well but it’s very much an iron ore price story,” IFM Investors chief economist Alex Joiner told the Australian Financial Review.
He added it was good for the country and it feeds into things that drive living standards.
Strict lockdown measures have impacted Brazil’s economy and despite Melbourne’s latest outbreak, Australia has managed to limit some of the financial fallout from the pandemic.
Meanwhile, Russia’s nominal GDP dropped to $US1.48 trillion ($A1.91 trillion) in the fourth quarter of 2020 and Australia’s sat at $US120.7 billion ($1.55 trillion), closing the gap by an estimated $US84.2 billion ($A108.8 billion).
“Our fiscal position has been made so much better by iron ore prices. It’s a modern day reinvention of ‘we are the lucky country’,” Dr Joiner told the AFR.
“This is an extraordinary tailwind for the economy and it’s an extraordinary gift to the government who benefits from the revenues we receive.”
Figures show that the Australian economy is set to become the world’s 12th largest economy in 2021, up two places from 2019, according to the International Monetary Fund.
Australia’s GDP will be around $2 trillion, yet the country is home to just 0.3 per cent of the world’s population and accounts for 1.6 per cent of the global economy.
China earlier flagged a plan to drive down the cost of Australia’s biggest export, but so far little impact has been felt. China buys 60 per cent of Australia’s iron ore.
The price of iron ore on Wednesday skyrocketed by a whopping 10.3 per cent to US$209.10 a tonne, according to CommSec. That comes after a 5.9 per cent rise on Tuesday.
Experts said doomsday predictions of a “sustained downtrend” in the price of iron ore is “unlikely”.
The price of the valuable steelmaking commodity had slumped after hitting a record high of more than $US230 a tonne last month, but it is back on the rise.
Beijing says the skyrocketing ore prices are putting China’s economic recovery from the pandemic at risk, with companies and everyday Chinese citizens bearing the cost.
Michael Shoebridge, the Director of Defence, Strategy and National Security at the Australian Strategic Policy Institute, said the iron ore situation has exposed a “frustrating reality for Beijing”.
“The Chinese state clearly wants to reduce its dependence on Australian iron ore,” he told news.com.au. “But Chinese demand for iron ore for steel production to power domestic construction and its manufacturing export engine makes it very unlikely that the Chinese economy can operate without it.”
He said that Beijing, as part of its plans to diversify, was looking to exploit untapped deposits in Africa.
However, he said the sheer scale of Chinese demand is likely to ensure Australian exporters retain a sizeable share of the China market for some years, despite everything the CCP is doing.