There's a serious possibility that iron ore price falls could trigger a recession and at the very least, future economic growth will be weakened

Intelligent Investor

Independent Financial Research

There's a serious possibility that iron ore price falls could trigger a recession and at the very least, future economic growth will be weakened. With iron ore constituting almost a third of Australia's terms of trade, the total hit over the next year will be about 9%. That's why national income is likely to fall over the next year and nominal growth will probably be weak. As a consequence, corporate profits are likely to fall, dividends and costs could be cut and government budgets will be stretched, possibly leading to more cost cutting and/or tax rises at a time of rising unemployment. BHP estimates that for every $1 fall in the iron ore price it loses $135 million in profit. Any fall in the Australian dollar may offer some relief but it won't fully offset the huge margin squeeze that is now underway. The profits of the big three are likely to take an $8 billion haircut. That means shareholders can forget about buy backs and growing dividends. (VIEW LINK)


Intelligent Investor
Independent Financial Research

Intelligent Investor is an independent financial research service with a 14-year history of beating the market. Our value investing approach empowers Australians to make more informed decisions to build their long-term wealth. We off structural...

Expertise

No areas of expertise

I would like to

Only to be used for sending genuine email enquiries to the Contributor. Livewire Markets Pty Ltd reserves its right to take any legal or other appropriate action in relation to misuse of this service.

Personal Information Collection Statement
Your personal information will be passed to the Contributor and/or its authorised service provider to assist the Contributor to contact you about your investment enquiry. They are required not to use your information for any other purpose. Our privacy policy explains how we store personal information and how you may access, correct or complain about the handling of personal information.