Iron ore, corona virus and next economic phase, page-3

What occurred in China over the last two months is largely unknown and we would never know the reality. Look at Italy, an European country with western and democratic values and the ongoing impact of Corona virus at the moment would give you a true sense of what would have occurred in China when Corona virus was at its peak.

Still people in China are scared and fearful of corona virus and a further spread due to Chinese travelers returning from virus infected countries can't be ruled out.

After GFC, China was stimulating its economy on a regular basis taking GDP to debt ration to 275% which is very high. This ratio may be even higher but I don't know because no body believes Chinese official figures. Secondly, large export surplus was used to continue to stimulate economy which no longer exists. Dropping further interest rates would cause havoc to Chinese currency that was one of the many reasons Chinese central bank did not lower interest rates during its last meeting two days ago.

So, number one Chinese Stimulus if occurred will not be of the same scale and in size that took place during the GFC back in 2008. Secondly, demand for Chinese goods and other manufacturing products is too weak at this stage to recover quickly any time soon all over the globe.

So, I will not expect BHP to go back $41 a share in foreseeable future. BHP shares more likely to drop further. So will be the situation with other iron ore mining companies for a long period of time. This wouldn't helpful to Australian budget.

Australian economy was facing challenges prior to Corona virus melt down! However, superficial, flimsy and quick government economic policies over years never let people realise that the economy is weakening. After the recent billions of dollars stimulus and quantitative easing I'm not sure whether Australian government would have any tool left if situation out of this Corona virus stays a bit longer or any other situation such as bush fire or floods etc occurs.

I also believe that days are gone when AUD reached over US dollar! A weak dollar would set-in inflation to a scale RBA would have to defend AUD at some stage in the future due to large current account deficits by raising interest rates.

So, many challenges are ahead for the Australian economy!