Bankwest’s chief economist Alan Langford has revealed a vast discrepancy between iron ore price predictions made by the state government and the International Monetary Fund which could have a big impact on WA’s deficit.
Mr Langford presented the South West Property Market and Economic Update Seminar in Bunbury on Thursday night and highlighted the 2016-17 Western Australian state budget estimates 817 million tonnes of iron ore will be mined in the 2019-20 financial year with the price estimated at $54 USD per tonne.
But forecasts from the International Monetary Fund have the price of iron ore at just $35 per tonne for the 2019-20 financial year.
The difference in the two prices over 817 million tonnes of forecast production is just over $15.5 billion.
Budget papers show the price of iron ore fell to $US37 per tonne in December 2015 but jumped to $63 USD per tonne in early March 2016.
This followed an announcement from the National People’s Congress that the Chinese government would maintain high levels of urban migration and continue its strong public investment in infrastructure and social housing.
The budget book also admitted over the medium term, growth in supply will likely outpace growth in demand, leading to periods of surplus production.
Mr Langford said the price of iron ore will be key to the state’s finances in the coming years.
“I don’t think we are in a recession but we are in the strongest headwinds we’ve seen since the recession in 1991,” he said.
“It could happen if China fall out of bed and I would say while we don’t want to scare ourselves into a recession, it’s a legitimate risk.
“You could make cases for both predicted prices but if the International Monetary Fund are right it might drag the Australian dollar down.”
Mr Langford said he felt the price of iron ore in 2019-20 would likely sit someone in the middle, around the $40 USD range.
“The Chinese have shown interest in a number of other export areas, such as beef and wine, and people need to eat, so as long as they keep buying we can get through this alright,” he said.