Australia's Budget Under Pressure: Weakness of Chinese Economy Meets Booming Commodity Business

Australia is feeling the effects of a weaker Chinese economy and plans to cut its budget estimates by 8.5 billion Australian dollars (5.4 billion USD) over the next four years. The decline is due to expected lower revenues from the mining sector, as announced by Australian Finance Minister Jim Chalmers on Monday. Chalmers emphasized that slower growth in China will have significant consequences for the Australian economy in the coming years. The revised budget forecasts will be published on Wednesday, predicting a decrease in expected export earnings from the mining sector by 100 billion Australian dollars by 2028. The reason for this is weak iron ore prices and reduced export volumes of minerals to China. The trade relationship with China remains in focus, as Beijing imposed a series of sanctions on Australian goods such as coal, wine, and seafood in 2020. Despite these challenges, China remained Australia's largest trading partner, relying heavily on the country's natural resources. In 2023, China accounted for almost a third of Australian exports, although the share has declined since 2020. According to UBS, this still corresponds to eight percent of Australia's GDP. The weaker Chinese economy has affected the prices of commodities such as iron ore and lithium, impacting Australia's influential mining sector, which remains optimistic that demand from emerging sectors like renewable energy could offset the decline in construction activity in China. The growth of the Australian economy has slowed this year, mainly due to weak consumer spending and declining productivity. GDP growth in the third quarter fell short of expectations, raising questions about the resilience of the Australian economy. Chalmers highlighted that Australia's trade relationships with other countries will continue to evolve over time. He praised the "impressive transformation" of the Chinese economy, particularly in consumer-oriented industries, and expressed optimism that Australia will continue to benefit from the "very productive and prosperous relationship with China.