Australia’s dependence on resource exports could come back to bite it as a slowdown in Chinese growth causes commodity prices to fall, the World Bank warns.
In its twice yearly update of economic forecasts for East Asia, released on Wednesday, the World Bank warns growth across the region is expected to slow to 7.6 per cent in 2012, down from 8.2 per cent in 2011 and nearly 10 per cent in 2010.
China, Australia’s biggest trading partner, is expected to see economic growth slow to 8.2 per cent in 2012, down from 9.2 per cent, before lifting slightly to 8.6 per cent next year.
Even with the anticipated slowdown, the region is expected to dramatically outperform the rest of the world, which is forecast to grow by just 2.6 per cent this year.
However, the World Bank warns China’s economy could slow more quickly if Europe’s sovereign debt crisis worsens.
If that happens, World Bank East Asia chief economist Bert Hofman warns, commodity exporting nations that have reaped the benefits of China’s boom, like Australia, could struggle.
“Countries that are relatively dependent on commodity exports, I think they are in a particularly vulnerable spot,” Mr Hofman told reporters from Tokyo.
“They have done really well the last couple of years, but now with the weaknesses in the economy setting in and to some extent the slowdown in China, commodity prices are vulnerable to weakening.”
Even if it emerges from the European crisis relatively unscathed, Mr Hofman says a drop in commodity prices is likely over the next decade as China’s growth rate moderates and the country changes to a consumer-based, rather than export-based, economy.
He said countries that produce consumer goods, such as Korea, Japan and Malaysia were the best placed to take advantage of the changes to China’s economy.
“In the longer term we do see China slowing down to a more moderate level – around five per cent growth by the end of the decade.
“That trend over time is going to be important for commodity dependent countries so to start preparing for that change now would be a good choice.”