Global GDP falls 3%

Optimism in Australian share markets falters after news the global GDP is likely to contract.

This week’s announcement from the World Bank that the global GDP for 2009 will contract nearly 3% has nullified the positive outlook that had started to grow among Australian mining investors, an industry analyst told MINING DAILY.

“People thought there were some green shoots emerging,” IBISWorld analyst Sam Ellis said.

“But the news that has come out of these World Bank updates has quashed some of the optimism among investors and that is probably why we have seen the reduction in share prices in the mining industry.”

According to Ellis, the global contraction means that manufacturing and engineering works will likely be down all over the world, lessening demand for commodities.

“A 3% contraction in global GDP would indicate that there is going to be less industrial activity happening around the world and therefore less demand for Australian commodities,” Ellis said.

Despite the market’s sudden decline in price earlier this week, the mining and metals index has actually been falling steadily since the World Bank’s first news of a possible global contraction earlier this month, Ellis said.

“We saw the metal and mining index fall sharply, opening down 4.5% on Tuesday morning, but this was a culmination. The index is down nearly 13% since June 11,” he said.

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