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Weak commodity prices hinder Australian economy

Weak commodity prices hinder Australian economy

Killian Plastow

Australia’s economy is being dragged down by weakening commodity prices, according to Fiducian.

In a note to investors, Fiducian’s investment manager Conrad Burge said that feeble commodity prices were contributing to an “ongoing decline” in Australia’s terms of trade (TOT).

Mr Burge said the March quarter had seen Australia’s TOT fall by 2 per cent, following 2015’s decline of 12 per cent.

The impact of this, said Mr Burge, was that the “real purchasing power of income generated by domestic production” contracted over the year to end-March.

Mr Burge added that the Reserve Bank of Australia may need to lower interest rates as a result of this, to lower the Australian dollar and increase the nation’s competitiveness on an international level.

Additionally, Mr Burge noted that between 1 January and 29 June, the Australian share market fell 3 per cent, though major share markets seem to be recovering after the shock caused by the result of the UK referendum.

 

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