Pssst, China and Australia are changing. Amid the usual headless-chickening of hedge funds and other speculators trying hard to drive down the value of the Aussie dollar (and make a killing from their counter investments), the big story is that Australia is well and truly stuffed, because commodity prices are collapsing and the economy will go to hell in a handbasket very quickly.
A nice story in the Financial Times overnight was a small but well-informed counter to that “thinking” when local correspondent Jamie Smyth pointed out the diversification (activity and regions) in the Australian economy that many other commodity producers didn’t necessarily have (anyone had a nice sav blanc from Canada or Norway, lately, or some tasty LNG or iron ore from across the Tasman?). And this morning in Sydney, some more corrective comments about China and Australia from the head of economics and number crunching at the Reserve Bank, assistant governor Chris Kent:
“We’ve detailed the effect of the decline in commodity prices on Australia’s economy elsewhere. I would just add that commodity prices remain relatively high. The Bank’s index of commodity prices has fallen by about 50 per cent from its peak, but is still almost 80 per cent above early 2000 levels. Clearly, conditions in the industrial sector in China, and Asia more broadly, will have an important influence on the path of commodity prices over the near term. Beyond that, the changing nature of China’s development implies that the potential for commodity prices to rise from here is somewhat limited … the shift in demand towards services and agricultural products within China and the Asian region more broadly presents new opportunities for Australian exporters. While our comparative advantages in service industries are perhaps less obvious than they are for mineral resources, the rise in the demand for services from a large and increasingly wealthier populace in our region will no doubt be to our benefit.”
His remarks were made to a conference organised by UBS called Australasia 2015. UBS is of course the big Swiss gnome (bank) that has numerous internal and external hedge funds and other speculators as its clients. Let’s hope Kent’s words and other similar commentaries from the RBA are kept in mind when advising said clients about Australia (and NZ to a lesser extent) and China. — Glenn Dyer
Oils aren’t necessarily extra virgin. Another extra virgin olive oil substitution scandal in Italy with new media reports that some of the country’s best selling brands are being probed for selling lesser quality oil as extra virgin (which sells at a premium to the average stuff). In fact, Italy’s anti-fraud police squad in Turin is examining whether seven well-known olive oil brands — Carapelli, Bertolli, Santa Sabina, Coricelli, Sasso, Primadonna and Antica Badia — have been mislabelling their products. According to allegations in Italian media reports, samples taken from those brands were not meeting EU labelling rules for extra-virgin olive oil.
Extra-virgin oil has to meet certain standards, such as its degree of acidity. Extra virgin comes from the first press of the harvested olives. Virgin olive oil is of a lesser quality but is above plain olive oil. Extra-virgin olive oil can cost between 30%-40% more than its lower-quality version. On its website, Pietro Coricelli rejected the allegations, arguing the test was flawed and unreliable. It said its oil had been carefully analysed by both its own analysts and outside laboratories. — Glenn Dyer
Extra Virgin prices are cooling, but still hot. Coincidentally, last week was also the release of the latest quarterly price and production report from the International Olive Council. At the end of last month, prices in Spain are still 90% above their low in May of last year, and 42% above where they were this time a year ago. In Italy prices have fallen from their peaks mid-year and are currently just 7% higher than this time in 2014, but more than 60% above the most recent lows in late 2013. And Greek prices are 24% above this time last year. Compared with refined oil prices, extra virgin oil is still at a considerable premium, but that is wider in Italy than Spain.
The reason for the price difference has been weak harvests firstly in Spain, and this past year in Italy where a combination of pests, poor weather and disease and bacteria has hit production hard, especially in some of the premium oil areas in Puglia. That’s why the premium oil prices remain higher in Italy and hence the temptation to substitute cheap oil (usually from Spain) for the scarcer extra-virgin oils. But in Australia the impact is being softened by rising domestic production of fruit and oils — so much so that there has been a noticeable fall in imports of both since November 2014. In fact exports of oils and fruit from Australia are growing, yet another small step in diversifying the economy away from rocks and (inedible) oil. — Glenn Dyer
I think Australia’s economy is much more diversified that many pundits admit. And we have over a trillion dollars in super funds so things aren’t too crook. And I see that new car sales are still buoyant.
It’s not an easy economy to kill, we love spending money and most of the world would like to live here.
Of course Ken it’s not (as you say) an easy economy to kill, otherwise the Crikey Land Cult and its various clones would have succeeded in doing so by now; but we mustn’t underestimate their enthusiasm for noble causes which may yet achieve that unfortunate goal.
First, Canada produces plenty of wine in its premier regions of Niagara in southern Ontario and southern British Columbia, tho it probably hasn’t promoted its exports as strongly as it could. But I’d be interested in comparisons of relative diversification of economies.
Canada has an aerospace industry (the private Bombardier, based mainly in Québec, makes planes for journeys up to a few hours), it still makes as well as assembles cars for the big USA manufacturers, it has a reasonable size film industry due mainly to USA filmmakers filming in Canada, and it has a reasonably strong tourism industry.