The Lucky country-Australia may not be that lucky anymore

February 3, 2012 at 1:55 pm 2 comments

3 news caught my attention

1. Australian PM, Gillard said that Aussie dollar is going to remain high for years to come.

2. Australia richest person(a woman) Gina Rinehart who owns iron ore mines could soon become the richest woman in the world.

3. Glencore and Xstrata are in merger talks.

The common link between these three news articles is metal commodities. The demand for these commodities are high due to China and other emerging nations and as supply couldn’t catch up in past decade, prices have skyrocketed. Of course, central bankers ultra-loose monetary policies lit the fire.

But can the commodity bubble continue without bursting? Answer is NO! China will change its economic model to focus more on consumption than investment and exports, it will also improve its efficiency in using resources so demand will grow at slower pace. Miners have been expanding production in anticipation of sustained high growth in demand by China. If the expectation is not met, supply will be greater than demand and with central bankers tightening their monetary policies in the next few years, commodities prices have to come down.

Australia should enjoy the tailwind as it lasts but it should be aware that the party won’t last forever. Luck may be running out for Australia in the next decade.

Entry filed under: Watch your step. Tags: .

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2 Comments Add your own

  • 1. Patience1982  |  February 26, 2012 at 5:27 am

    Oh well, those living in Australia will have to enjoy it while it lasts. I do believe all good things always come to an end thus to work as hard as we can when we are young, save, invest in shares, properties and having adequate insurance thus in the long run when the rainy day comes, we should be able to weather the storm.

    I am currently based in Melbourne Australia and am still adapting to the way of life here as the locals spend alot of money on rent (they believe in renting and not buying), eating out and drinking beer.

    Reply
  • 2. Rick Fulford  |  November 12, 2013 at 6:50 pm

    I used to live in Perth, hate the place now. Australia is finished, nothing is the same and I fear for the future. Sorry to sound so defeatist but you get like that.

    Reply

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