A senior Westpac economist has told a Melbourne conference there will be a slow down in the Chinese economy later this year but it’s unlikely to result in a crash.
Westpac senior economist Justin Smirk told the Tractor and Machinery Association of Australia (TMA) annual conference in Melbourne that China would be the world’s most interesting economy over the next 12 months.
“The economy looks like it’s going to slow in the second half of this year,” Mr Smirk said.
“While you might start hearing about that event, if people start talking about a China crash, be very cautious - it is not really about to fall over, it’s more like a slow down in growth.”
If people start talking about a China crash, be very cautious - it is not really about to fall over, it's more like a slow down in growth.
- Justin Smirk, Westpac economist
In November, China would issue its next five year plan.
“(President) Xi wants to cement his position, they have hard reforms to do around steel production, around industry reform, around health, around environment, and the stability in the finance sector, they are all things that slow growth as they adjust.”
He said there was also a reason why hedge funds and foreign investors were trying to buy beef and cattle properties.
“There is a long range view as to how constrained supply is going to be in an environment of rising demand,” he told the conference.
“The Americans are going to continue to produce massive amounts of bulk meat, the Chinese are already the biggest producer of bulk meat. It’s got to be around quality - high value, high quality products will attract a premium.”
Mr Smirk said while dairy “has become almost like an industrial product” – the long run trend showed a rising demand for high value protein products. It echoed trends prior to World War One and post World War Two. “There is massive urbanisation and rising incomes, leading to a rising demand for high value protein products.
“It will end when China starts maturing, which is not really that far away, probably a decade, when they start stabilising their population and income growth.”
He said while American and Australian grain producers were growing more crops, on less land, the real question was the role of Russia.
“They are starting to make more effective use, with privatisation and captialisation, of their land. Russia is starting to re-enter the grain market, so do watch this space,” Mr Smirk said. “Their distribution and transport networks are terrible; let’s just see how they invest, in the next few years.”
In the energy sector, lower oil prices were likely to continue, as new reserves were found in America, which had a big capital market, skills and distribution base.
“They are more efficient and better at what they are doing,” he said.
“The break even point for the American driller, on average, is around $45 a barrel, but it’s a big spectrum, some are around $20 a barrel.”
He predicted prices might fall as low as $40, in the next 12 months.
But he said in Australia, gas prices had “gone through the roof, as a result of policy failure. “We are an energy rich nation, we are exporting as much gas as Qatar is, and yet we have rising gas prices,” he said.
No new coal fired plants were planned, or were likely to be built.
“They are not closing because someone decided they produced too much carbon, they are closing because those plants are so old, they are too expensive to maintain.”
