In the event of a hard landing in China, Australia would suffer a sharp fall in exports to its biggest trading partner. Global commodity prices would tumble given China’s importance for commodity markets, which would risk stunting Australia’s investment boom. On the plus side, the Aussie dollar would decline as well, thereby providing some support for exports more generally. Policymakers would also respond by cutting interest rates and possibly introducing fiscal stimulus. On balance, Australia’s growth would be closer to 2% this year rather than the 3.5% we currently envisage. That would be sub-trend, but still better than the 1.4% growth Australia posted amid the 2008-09 crisis.
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