Tribeca portfolio manager Sean Fenton spoke about the ramifications of lower commodity prices at a Grant Samuels Funds Management lunch in Sydney yesterday.
The end of the commodity super-cycle is a "big unknown" for the Australian economy, Mr Fenton said.
Mining itself doesn't employ a lot of people – but the money from the mining boom has flowed through to hairdressers and baristas in Perth – as well as accounting and legal firms in Sydney.
"What we don’t know is the extent to which those multipliers will drive themselves across the economy," he explained.
Most importantly, the money from the commodity super-cycle is not coming back.
"This isn’t some sort of cycle that’s going to come back again – it’s a huge one-off structural super cycle that is now in its twilight years," he said.
The RBA is aware of the problem, hence the interest rate easing cycle of the last two years.
"That’s been very effective in the short term in helping to rebalance growth in Australia," he said.
The RBA has been explicit in its plan to use the property sector to boost growth in the Australian economy.
"A couple of years ago they changed all of their rhetoric. Post-GFC it was all about allowing households to deleverage," he said.
But now the RBA appears happy to see house prices rise, and construction has taken off as a result.
"But where do we go from here? What happens if we get hit by a shock? What’s the exit strategy from this for the RBA?" Mr Fenton asked.
The dreaded 'hard landing' in China could be disastrous for Australia, he said.
"What happens if China starts to contract and you’ve got to get prices so low you’re forcing supply out of the market?
"It's a very high-risk strategy from the RBA to try and get the dollar down and stimulate a bit of export using housing as a lever to rebalance the economy.
"It's certainly a risky strategy. It might turn out beautifully, but if something goes wrong there's not really a lot of bullets left (given the budget position) to offset that," Mr Fenton said.
