Australia’s commodities-driven economy surged when China’s economy was accelerating and importing commodities like crazy.
And now it’s getting slammed with China’s economy decelerating.
“Make no mistake – the Australian tide is going to be heading way out as China is about to have what our economist Wei Yao described as its’ Minsky moment’, or in layman’s terms, its day of reckoning!” warned Societe Generale strategist Albert Edwards. “But even before China suffers this ‘moment’, final demand in the commodity dependent Western Australia (WA) has fallen into recession.
Earlier today, we got confirmation that things were still ugly in Australia. The country’s manufacturing PMI tanked to 42.0 in July from 49.6 a month ago.
Any reading below 50 signals contraction.
“Manufacturers are telling us that, while the fall in the Australian dollar and the May interest rate cut have been extremely welcome, they have not yet been enough to turn around a very challenging business environment, locally and internationally,” said the Australia Industry Group.
Indeed, a major culprit continues to be slumping new orders and horrifically low exports (blame China). From the report (verbatim):
– The new orders sub-index in the Australian PMI® dropped by 9.5 points to 40.5 points in July (seasonally adjusted). This more than unwound the improvement in this sub-index in June (when it almost touched the 50 point expansion marker, at 49.9 points) and took it back to the average level of the first quarter of 2013.
– The new orders sub-index deteriorated in all eight sub-sectors in July. It remained above 50 points in the food & beverages sub-sector but below 50 points for all others (unadjusted data). Respondents noted that new orders from local customers have all but dried up as the new financial year begins, with orders from mining, construction and agriculture said to be particularly tight.
– The exports sub-index deteriorated by 4 points in July, to 26.4 points. This reversed a promising improvement in this sub-index in the previous two months (possibly responding to the drop in the dollar in May) and took it close to April’s record low of 24.5.
– Competition in international markets remains fierce for most manufacturing exporters, despite the benefits of the lower dollar.
The chart to the right shows how the new orders and exports sub-indices have crumbled.