The collapse in commodity prices over the past year have shaken up the global economy, and for countries dependent on natural resource exports, the bust has been painful. Analysts have watched turmoil spread, but the world may have just seen the first political casualty from the downturn in commodity prices.
Australia’s Prime Minister Tony Abbott was ousted on September 14 by his own Liberal Party, and replaced with a former cabinet minister Malcolm Turnbull. Abbott had made the development of the mining sector central to his plan for the economy during his tenure as Prime Minister, scrapping taxes on coal and iron ore profits, and getting rid of the country’s carbon tax. And although much of Abbott’s downfall can be attributed to his personality and ruling style – which had become increasingly unpopular in Australia – he bore the brunt of his country’s deteriorating economic conditions following the bust in commodity prices over the past year. Related: BMW Going All-Electric
It has been almost a quarter century since Australia last had an economic recession, but that streak is in danger of coming to an end after the economy has dramatically slowed. In the second quarter, Australia’s GDP expanded by just 0.2 percent from the first quarter, the weakest performance in four years. There are concerns over a property bubble, and household debt has skyrocketed in recent years.
The economy is heavily exposed to commodity prices, with iron ore and coal as the country’s largest exports. In fact, Australia’s economy is inextricably linked to China’s, with the land Down Under acting as a massive supplier of all sorts of raw materials. However, China’s economy is stalling out and is in danger of falling short of its 7 percent growth target. As a result, commodity prices have collapsed, blowing a hole in the Australian economy. Add to that fears over China’s stock market, and there is a level of anxiety in Australia not seen in years. Related: Goldman Sachs: Oil Could Sink As Low As $20
The lower-than-expected public revenues has led to a disappointing tenure for Abbott, and members of his party decided to oust him as they prepare for elections in 2016.
With so many natural resource-dependent countries around the world suffering much worse than Australia, there could still be many more political casualties from the commodity bust.
By Charles Kennedy of Oilprice.com
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