China’s flagging economic growth is “concerning” for Australia, Treasurer Jim Chalmers said, adding that it’s “quite remarkable” Beijing is grappling with the risk of deflation at a time when most nations are trying to restrain prices.
China is Australia’s largest trading partner, taking just under one-third of Australian exports, leaving it vulnerable to weakness in the the world’s second-largest economy. Australia is monitoring China’s economy “very, very closely,” Chalmers told Bloomberg Television on Tuesday in an interview at the Group of 20 meeting in Gandhinagar, India.
“It has a substantial impact on how we see prospects for the global economy,” Chalmers said. “China is obviously a big piece of the puzzle for us and so when the data out of China is a bit softer, that is concerning to us.”
Australia hasn’t yet revised its own forecasts despite China’s poor economic news, the treasurer added.
China’s recovery lost momentum in the second quarter — expanding just under 1% from the prior three months and putting Beijing’s growth target for the year at risk. Deflation is now a major threat, data Monday showed, with economy-wide prices declining for the first time since 2020.
The weak GDP data intensified calls for more stimulus, with attention now shifting to a meeting later this month of the Communist Party’s Politburo, which will decide economic policies for the rest of the year. Beijing has hinted, though, that stimulus measures this year will likely be limited in scale, reflecting its relatively modest growth target of around 5% for the year.
The Reserve Bank of Australia echoed that China’s post-Covid economic recovery had “lost some momentum” in minutes of its July meeting released Tuesday. It highlighted that China’s housing starts had declined to their lowest level since 2006 and real estate investment had contracted further to be almost one-quarter below its 2020 peak.
China’s property sector is a key driver of demand for iron ore, Australia’s largest export.
Neither the RBA or Treasury are forecasting a recession for Australia, but the economy is expected to slow over the next year following the central bank’s 4 percentage points of cumulative interest-rate hikes since May 2022 as it sought to rein in inflation.
Second-quarter inflation data will be released next week and Chalmers said he expected prices to “moderate” from the 7% annual figure recorded in the first three months of the year.
The treasurer said he welcomed new data out of the US which showed inflation in America slowing to 3%. However, he warned against comparisons between Australia and the US as consumer prices peaked earlier in America and had been cooling for longer.
“People are in different parts of this inflation fight,” Chalmers said.
“The Chinese situation is quite remarkable, as was Japan’s before it,” he said, referring to the risk of prices falling. Inflation remains the “defining challenge” in Australia’s economy even as it has been coming down, he added.
--With assistance from Swati Pandey.