In the years since the Global Financial Crisis first arrived on Australia’s shores in 2008, the tale of Australia’s economic performance has been impossible to separate from the success story that is the industrialization of China.
Seemingly like clockwork, every time the Aussie economy started looking like its luck was finally about to run out, another industry would boom in the Middle Kingdom or a Chinese government stimulus program would inadvertently ride to the Lucky Country’s rescue.
While it may not have been as apparent as it was in the late 2000s, Chinese demand for Aussie bulk commodity exports once again came to Australia’s aid in the two years since the pandemic began. Despite Beijing’s attempts to hit the Australian economy again and again through punitive trade actions, China’s insatiable appetite for iron ore and coking coal saw them once again significantly boost Australia’s fortunes.
Between April 2020 and May 2021, the price of Australia’s single largest export iron ore, tripled in value, providing a huge boost to the economy and a hard hit Treasury bank balance.
But as a series of global challenges including those stemming from the war in Ukraine slowly become clearer, it raises a major question, will Chinese demand for bulk commodities be there to cushion Australia’s fall next time things start to go wrong?
Existing challenges
As the war in Ukraine continues to rage, it’s increasingly easy to see the challenges the world faces through the lens of the impact of the ongoing conflict. But even before the first Russian tanks crossed the border on February 24, a number of different indicators were already pointing to some difficult times ahead.
Globally, fertilizer prices were heading toward all-time highs, with some regional indices reaching similar price levels to those that were historically associated with contributing to social unrest in 2008 and the Arab Spring movement in 2011.
In China, cities were still heading in and out of lockdown, as Beijing continued its ‘Covid Zero’ strategy of coping with the virus by using some of the most strict movement restrictions in the world.
As anyone who’s been to a supermarket or petrol station even prior to the war in Ukraine could tell you, the cost of living was already taking off globally before the first shot was fired.
In the US, annual inflation hit 7.9 percent, its highest reading since the early 1980s. In Germany, the cost pressures being faced by manufacturers hit the highest level since 1949, which was defined by the aftermath of the Second World War.
With inflation returning with a vengeance after spending decades largely contained in much of the developed world, central banks around the globe rapidly shifted from easy monetary policy designed to combat the pandemic to swiftly raising interest rates.
And then things got worse
Since the war in Ukraine began these challenges have been amplified significantly, particularly the issue of food security which has become a problem at the forefront of the concerns of world leaders.
French President Emmanuel Macron warned last week that “We are entering an unprecedented food crisis.”
“The war in Ukraine makes it impossible to sow [seeds] as much is needed and is creating a situation that will be even worse in 12-18 months. This situation will create a food crisis and serious humanitarian situations in many countries, surely with massive political consequences,” he said.
