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Moves to prevent further fall in commodity export prices

Moves to prevent further fall in commodity export prices article image

Australia’s major commodity exports took a tumble on fears of growing defaults among highly geared Chinese companies and further signs of economic slowdown.  

But according to the Export Finance and Insurance Corporation (EFIC) China has moved swiftly to avoid a “hard economic landing.”  

In the latest issue of World Risk Developments, EFIC’s chief economist Roger Donnelly says in response to the price tumble, authorities moved quickly to ease policy.  

They have removed their implicit blanket guarantee of corporate debt and made the exchange rate more flexible.  

“In allowing China’s first onshore corporate bond default, Beijing is attempting to limit moral hazard and overzealous and mispriced credit extension,” says Donnelly.  

“Along with macroeconomic policy stimulus, this is a sensible mix of policies to avoid a hard economic landing.”  

World Risk Developments released last week also examines recent developments in Crimea.  

Asset freezes and travel bans on selected Russian and Ukrainian individuals have provoked a moderate market selloff, and will be a drag on an already sluggish Russian economy, Donnelly predicts.  

But while the sanctions could be extended, comprehensive ones that knock the Russian economy into crisis are unlikely, he says.  

“Dependence upon Russia as an energy supplier and export and investment destination means that so far no country seems inclined to impose financial sanctions — including the US, EU and Australia — have imposed sanctions on or economic sanctions with real teeth.  

“But we acknowledge the situation is fluid and has potential to worsen.” 

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