AUD: Government budget boost - AmpGFX
Greg Gibbs, Director at Amplifying Global FX Capital, notes that the Australian business journalist Peter Martin made a number of interesting observations as he noted that the Australian government is likely to receive some positive news for a change on the nation’s budget position.
Key Quotes
“Based on Access Economics analysis, Martin estimates that the budget boost from the recent rise in coking coal prices is $7bn per year (assuming the price remains around the recent high). He wrote, “And that’s just for coking coal. The iron ore price is up 40 percent this year. The price of thermal coal (the stuff that makes electricity) is up 55 percent. It’s not bad for an industry that had been shutting mines and laying off workers.”
In May, the Budget deficit for the current fiscal year ended Jun-2016 was forecast by the government at around $A40bn, around 2.2% of GDP. Not disastrous by global standards. Budget repair remains a fairly high priority in Australia, although plans to return to balance are not particularly well-formed.
Martin also noted that, “Moody’s reported on Wednesday that it expects Australia to become the world’s fastest growing AAA-rated commodity exporter, beating Canada, Norway, and New Zealand. It’s not likely to take away the AAA rating any time soon.”
The rebound in commodity prices this year is likely to be treated with some skepticism by the resources industry in Australia as it observes the Chinese and global economy. The sustainable pace of demand growth is likely to remain at its down-shifted levels of recent years, preventing a significant bounce back in investment in the sector. Nevertheless, the income generated from the resurgence in commodity prices is likely to provide some broader support for the economy and help sustain economic confidence. A boost to the budget and external accounts should provide some support for the AUD.”