Home / Economics / China to drive resources in face of weaker growth: Ausbil

China to drive resources in face of weaker growth: Ausbil

China is seeing an acceleration in growth forecasts which will filter through to higher demand for commodities, managers say.
Economics

Despite slowing US and European economic growth, Chinese growth is likely to accelerate following its hard COVID lockdowns and stimulus efforts. As it did during the Global Financial Crisis (GFC), China may insulate local resources and commodities companies from the impact of slowing world growth.

“The US and broader western developed economies are slowing, driven by increased central bank intervention with the goal to stem surging inflation,” Ausbil Investment Management said in a recent research paper.

There are some similarities between the GFC and the current environment that have helped the team at Ausbil assess the potential impact on commodities demand.

  • “China is seeing an acceleration in growth forecasts, driven by the announcement and expectation of stimulus measures following extended lockdowns,” the report explained.

    “China is effectively already in a similar position to late 2008 when stimulus measures were announced. The economy has already slowed, and stimulus measures are being announced at a scale larger than in 2008, albeit off a larger economic base.”

    Assessing metal demand around the GFC

    The report showed that as China exited the GFC demand for copper, nickel and iron ore increased significantly.

    “China is without question a dominant force in commodities, consuming at least 50 per cent of core commodities. Iron ore is absolutely dominated by China, with in excess of 70 per cent of global demand, but Chinese demand for all key commodities exceeds 50 per cent,” the report illustrated.

    While the outlook for the west has weakened, China is stimulating growth.

    “Given that China represents at least 50 per cent of commodity demand, we believe commodities are likely to benefit from Chinese stimulus which is yet to hit the ground.”

    “From our perspective, physical activity has been constrained by lockdowns to date, but this is alleviating (albeit outside small flare-ups in COVID cases). We therefore expect that Chinese demand is likely to accelerate in the coming months.”




    Print Article

    Related
    ABS figures show self-funded retirees sheltered from the scourge of inflation

    All five Living Cost Indexes jumped in the March 2024 quarter. But while employee households carried the brunt of higher prices, self-funded retirees emerged relatively unscathed.

    Nicholas Way | 8th May 2024 | More
    Growing economic woes don’t bode well for retiree cost-of-living relief

    When Federal Treasurer Jim Chalmers hands down the budget on 14 May, the pressing need for fiscal responsibility is likely to trump spending programs.

    Nicholas Way | 1st May 2024 | More
    Risk of an ageing population overstated: Mercer

    Mercer actuary David Knox says the data used to determine the old age dependency ratio is “totally out of date” and overstates the severity of the problem.

    Nicholas Way | 23rd Apr 2024 | More
    Popular