The iron ore price has risen above $US92 a tonne

Colin Brinsden, AAP Economics Correspondent
(Australian Associated Press)


The Reserve Bank believes increased exports of iron ore will make a significant contribution to economic growth, as the price hit a two-and-a-half-year high.

It also potentially adds billions of dollars to the budget bottom line through increased tax revenue.

The iron ore price has risen above $US92 a tonne, well above what Treasury had been predicting at the time of the mid-year budget review in December.

But Malcolm Turnbull isn’t prepared to say whether this is sustainable.

“I didn’t make habit of predicting commodity prices when I was actually in business let alone as prime minister,” the prime minister told Bloomberg Television on Tuesday.

“But obviously the rise is welcome, we are big exporter.”

Treasury had assumed the iron ore price would drop from an average $US68 through the March and June quarters of 2017 to $US55 in the September quarter.

The Reserve Bank, in the minutes of its February 7 board meeting, reiterated it does not expect the economic weakness seen during the September quarter last year will be repeated when the national accounts for the December quarter are released on March 1.

It would mean a recession has again been avoided, an event Australia has not suffered for more than a quarter of a century.

The 0.5 per cent growth contraction in the September quarter was the result of some temporary factors, including coal supply disruptions and bad weather.

A large trade surplus, aided by resource exports, was subsequently recorded in the following three months.

“Australia’s low-cost producers of iron ore were expected to increase output further and the ramp-up in liquefied natural gas production was expected to make a significant contribution to output growth,” the central bank said.

The drag from falling mining investment was also expected to diminish.

However, it warned subdued growth in household income was likely to constrain consumption growth.

December quarter wages figures are released on Wednesday, which economists expect will continue to show annual growth sub-two per cent and the lowest in at least two decades.

Consumer confidence, a pointer to future spending plans, also declined for a third straight week.

The ANZ-Roy Morgan confidence index dropped by a further 2.3 per cent in the past week to its lowest level since December.

Notably, views about household’s finances tumbled 7.5 per cent to a two-and-a-half-year low, which ANZ’s head of Australian economics David Plank said was a concern as this sub-index is closely correlated with consumer spending.

“Signs of renewed weakness in full-time employment may have weighed on consumers views’ of their personal finances,” he said.


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