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tionship was in its infancy, the correlation coefficient between annual real GDP growth in Australia and China was just 0.25. It nearly doubled to 0.47 between 2000-09, although since 2004, it shot up to 0.74, and since 2007, it has spiked to 0.98. It follows, therefore, that a significant slowdown in China would increase the risk of sub-trend growth in Australia. As a rule of thumb, on our estimates, the direct result of a moderation in Chinas GDP growth of 1%oya over any one quarter (which is roughly in line with our forecasts in 2H10) would result in a 0.5% slowing in %oya terms in Australias GDP growth.
Economic Research Australia to benefit from China ties for some time yet September 10, 2010
In the June quarter of this year, Australia posted a trade surplus of A$6.6 billion, an A$11 billion turnaround from the deficit in 1Q, owing mainly to increased trade with China. With China now Australias most significant trading partner, the recent drop in coal and iron ore exports to China in July generated concerns that Australia was facing an abrupt slowdown. These concerns, in our view, are overdone. First, the inventory correction in China during the second quarter largely explained the drop in Chinas imports of commodities. That correction now is past. Second, Chinese steelmakers probably held back on buying when commodity prices were high, and instead ramped up domestic production of these materials. As prices fall, Chinas commodity imports should increase. And, third, routine maintenance at Chinese steel mills in July prompted a temporary slump in iron ore imports.
ning and are being inhibited by capacity constraintsthe filling pipeline paves the way for a further gain in the investment share.