Australia faces a gathering threat to its 21-year run of recession-free growth that will likely require the central bank to cut interest rates to record lows and keep them there for some time, if the winning streak is to stretch to 22.
The slowdown in China has deflated prices for Australia’s key resource exports while forcing miners to scale back on their most ambitious expansion plans. When the country reported its widest trade deficit in three years for August, it seemed just a taste of what was to come.
“It’s like we’re watching a slow motion train wreck,” said Su-Lin Ong, a senior economist at RBC Capital Markets.
“The decline in export earnings will take toll on wealth, incomes and consumption right across the economy,” she explained. “And it’s happening when fiscal policy is being tightened and the Australian dollar is restrictively high.”
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