Scutt: Iron ore doesn’t matter

From Business Insider’s David Scutt:

If there’s one thing Australian markets types love to talk about at present, it’s the slumping iron ore price…There’s a sense of doomsaying about this; it’s going down the gurgler, taking the industry and Australia with it.

…But it’s easy to overestimate the impact of the iron ore slump on Australia’s economy. While it is pressuring national incomes, that doesn’t automatically imply the nation’s economy is in trouble.

Take the chart below, showing the value of Australian services exports compared to the nation’s iron ore exports.

Clearly, services now dominate iron ore when it comes to export value.

Put simply, Australia is not just a giant iron ore pit, nor does the bear market in its price mean that the economy is in dire straits. The nation’s services sector is starting to hum, with employment soaring over the past 12 months.

Economic rebalancing has not only started, it’s accelerating.

There’s something to take into your next conversation with a bear.

When that rather ill-informed BI reader accosts you with his chart I suggest you counter with this one:

Services exports are paltry next to the full range of collapsing commodity exports. Now just imagine what the above chart will look like as iron ore revenues halve again next year.

There are other arguments one might use to counter the concerns about iron:

• exports make up a small percentage of Australian growth;
• the government will absorb much of the income shock;
• more rate cuts can support consumption if needed etc.

But Scutt uses none of them even if they won’t prevent the iron ore shock hitting the economy hard, either.

I could go on but there ain’t a lot of point countering click bait.