Best of the Week
Most Popular
1.UK General Election BBC Exit Polls Forecast Accuracy - Nadeem_Walayat
2.UK General Election 2017 Seats Final Forecast, Labour, Conservative Lib-Dem, SNP - Nadeem_Walayat
3.UK General Election 2017 Forecast: Conservative 358, Labour 212 Seats - Nadeem_Walayat
4.Theresa May to Resign, Fatal Error Was to Believe Worthless Opinion Polls! - Nadeem_Walayat
5.UK House Prices Forecast General Election 2017 Conservative Seats Result - Nadeem_Walayat
6.The Stock Market Crash of 2017 That Never Was But Could it Still Come to Pass? - Sol_Palha
7.[TRADE ALERT] Write This Gold Stock Ticker Down Now - WallStreetNation
8.UK General Election Results Map 2017 vs 2015 vs Opinion Polls - Nadeem_Walayat
9.Orphaned Poisoned Waters,Severe Chronic Water Shortage Imminent - Richard_Mills
10.How The Smart Money Is Playing The Lithium Boom - OilPrice_Com
Last 7 days
Gold and Silver Ongoing Consolidation May End Soon - 24th Jun 17
Dollar May Become “Local Currency of the U.S.” Only - 24th Jun 17
Sheffield Great Flood of 2007, 10 Years On - Unique Timeline of What Happened - 24th Jun 17
US Stock Market Correction Could be Underway - 24th Jun 17
Proof That This Economic Recovery Narrative is False - 24th Jun 17
Best Cash ISA for Soaring Inflation, Kent Reliance Illustrates the Great ISA Rip Off - 24th Jun 17
Gold Summer Doldrums - 23rd Jun 17
Hedgers Net Short the Euro, US Market Rotates; 2 Horsemen Set to Ride? - 23rd Jun 17
Nether Edge By Election Result: Labour Win Sheffield City Council Seat by 132 Votes - 23rd Jun 17
Grenfell Fire: 600 of 4000 Tower Blocks Ticking Time Bomb Death Traps! - 22nd Jun 17
Car Sales About To Go Over The Cliff - 22nd Jun 17
LOG 0.786 support in CRUDE OIL and COCOA - 22nd Jun 17
More Stock Market Fluctuations Along New Record Highs - 22nd Jun 17
Understanding true money, Pound Sterling must make another historic low, Euro and Gold outlook! - 22nd Jun 17
Green Party Could Control Sheffield City Council Balance of Power Local Election 2018 - 22nd Jun 17
Ratio Combo Charts : Hidden Clues to the Gold Market Puzzle - 22nd Jun 17
Steem Hard Forks & Now People Are Making Even More Money On Blockchain Steemit - 22nd Jun 17
4 Steps for Comparing Binary Options Providers - 22nd Jun 17
Nether Edge & Sharrow By-Election, Will Labour Lose Safe Council Seat, Sheffield? - 21st Jun 17
Stock Market SPX Making New Lows - 21st Jun 17
Your Future Wealth Depends on what You Decide to Keep and Invest in Now - 21st Jun 17
Either Bitcoin Will Fail OR Bitcoin Is A Government Invention Meant To Enslave... - 21st Jun 17
Strength in Gold and Silver Mining Stocks and Its Implications - 21st Jun 17
Inflation is No Longer in Stealth Mode - 21st Jun 17
CRUDE OIL UPDATE- “0.30 risk is cheap for changing implication!” - 20th Jun 17
Crude Oil Verifies Price Breakdown – Or Is It Something More? - 20th Jun 17
Trump Backs ISIS As He Pushes US Onto Brink of World War III With Russia - 20th Jun 17
Most Popular Auto Trading Tools for trading with Stock Markets - 20th Jun 17
GDXJ Gold Stocks Massacre: The Aftermath - 20th Jun 17
Why Walkers Crisps Pay Packet Promotion is RUBBISH! - 20th Jun 17
7 Signs You Should Add Gold To Your Portfolio Now - 19th Jun 17
US Bonds and Related Market Indicators - 19th Jun 17
Wireless Wars: The Billion Dollar Tech Boom No One Is Talking About - 19th Jun 17
Amey Playing Cat and Mouse Game with Sheffield Residents and Tree Campaigners - 19th Jun 17
Positive Stock Market Expectations, But Will Uptrend Continue? - 19th Jun 17
Gold Proprietary Cycle Indicator Remains Down - 19th Jun 17

Market Oracle FREE Newsletter

The MRI 3D Report

Low Interest Rates Helping Australia Transition from the Mining Boom

Interest-Rates / Austrailia Mar 23, 2017 - 05:30 AM GMT

By: Nicholas_Kitonyi

Interest-Rates Australia’s transition from its reliance on mining exports to other sectors appears to be gathering pace as more businesses continue to take advantage of the low interest rates.

The Reserve Bank of Australia reduced the base interest rate, popularly referred to as the cash rate, twice last year from 2% to 1.75% and again to 1.5%. The cash rate remains fixed at 1.5%, which when compared to many developed countries is still one of the highest.


The US base interest rate currently stands at 0.75% following the most recent hike whereas the UK reduced its rate from 0.5% to 0.25% last year. On the other hand, the rate for the Euro area remains pegged at 0% whereas Japan’s interest rate has been below 0% since the start of 2016.

China is one of the few notable major economies to have a higher interest rate than Australia with a current rate of 4.35%. China has for several years been one of the main consumers of Australia’s mining products.

However, the world’s most populous country has experienced significant economic slowdown over the last few years, which together with the collapse of the commodity prices have contributed to the end of Australia’s mining boom. As such, Australia has had to transition from its reliance on mining exports to a more dynamic economic model, which includes creating a more favorable business environment for entrepreneurs.

By lowering interest rates, this has enabled banks to lower their lending rates, thereby boosting the country’s small loan market. Currently, Australia’s bank lending rate stands at 8.6% down from 10.65% from five years ago, and nearly 9% last year.

Based on these numbers, it is correct to say that Australia is still far off from the likes of the US, the EU and the UK. However, per Rob Sinclair Finance, an Australian-based startup that helps small businesses and individuals to access financing, the recent interest rate cuts are having a positive impact on the country’s small loan market with many people now looking to expand their businesses. This is boosting entrepreneurship in the country thereby helping in the transition from the mining boom of the yesteryears.

Australia’s mining sector contributes more than 50% of the country’s exports, which means that a slowdown was expected following the end of the mining boom. Reports indicate that between the year 2000 and the year 2010, the value of exports from mining rose by over 120%, from $63 billion to $139 billion. This is believed to have played a huge part in Australia’s massive growth in exports during the late 1990s to the 2010s period.

That growth appeared to slow down after the year 2010 characterized by high volatility in the value of exports on an annual basis as demonstrated in the chart above. In 2016, there was a sharp spike in Australia’s exports which coincided with the reduction of the base interest rate.

While the country continues to experience high iron ore, coal, and LNG exports (in that order) from the mining sector, analysts believe that Australia’s export market will be dominated by energy in the coming years with the country expected to be the world’s largest exporter of LNG.

In addition to this, Australia is expected to continue growing its Agricultural exports while at the same time expanding its manufacturing sector. As such, the country is now moving from its reliance on mining products which currently account for about 10% of its GDP to a more diversified economic model.

The reduction of interest rates also makes Australia’s products cheaper relative to other currencies, which could also explain the rapid increase in the value of exports last year.

Conclusion

The bottom line is that Australia’s mining boom might be over, but that is not likely to affect its overall economic growth going forward.

The country has taken measures to transition from its reliance on the mining sector, and while this sector continues to play a major part in the overall GDP—agriculture, entrepreneurship and manufacturing sectors are expected to augment its exports portfolio.

By Nicholas Kitonyi

Copyright © 2017 Nicholas Kitonyi - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife