Australia’s economic policy chief, Treasurer Jim Chalmers, has warned that falling iron ore prices linked to a major slowdown in China’s construction output could lead to a A$3bn hole in previously expected tax receipts.
Prices for iron ore, needed to produce steel, have fallen by around 31% since the start of this year amid shrinking demand in China.
One measure of China’s construction output is residential construction.
As a result of its real estate crisis, residential construction starts in China have tumbled from their 2019 peak of 1,675 million square metres to just 693 million square metres last year, a level of output not seen since 2006, Statista records.
Chalmers warned that “softness in the Chinese economy” showed that Australia was “not immune from volatility and uncertainty in the global economy”, AFP reports.
His department believes the tax shortfall will occur over the next three to four years.
The metal accounted for 18% of Australia’s total exports last year.
Australian mining giants are feeling the pinch, with shares in Rio Tinto and BHP – two of the world’s biggest producers – down approximately 20% since the start of the year.
Reserve Bank of Australia governor Michele Bullock told parliament earlier this month that she was watching the situation closely given Australia’s dependence on China.
“It’s our biggest trading partner, and it’s very important in particular for the prices of the commodities that we export, in particular iron ore,” she said, according to AFP.
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