India will step up as China's economy slows, says Josh Frydenberg

The urbanisation of India and its swelling middle class will step in to fill the breach as China’s economic growth slows, according to the resources minister, Josh Frydenberg.

Despite a slowdown in China and the International Monetary Fund cutting its forecasts for global growth for the third time in less than a year, Frydenberg said on Wednesday that the fundamentals of the world economy were still in favour of commodities.

The IMF downgraded its growth forecasts for China on Tuesday and expected Brazil, a large exporter of iron ore like Australia, to remain mired in recession in 2016 amid lower Chinese demand.

Frydenberg said the IMF’s forecasts of 3.4% in 2016 and 3.6% in 2017 (down 0.2 percentage points from estimates in October) were still very strong.

He said Australia was in the production stage of a commodities super-cycle, with a massive increase in supply putting downward pressure on prices.

It would take some time for demand to catch up but urbanisation throughout the Asian region would create plenty of opportunities.

“Other opportunities in the region, particularly in Asean countries, particularly in India, will hopefully meet the hole that has been left by the slowdown in China,” he told Sky News on Wednesday.

“[India] hasn’t gone through the urbanisation and development that China has but under the Modi government they’re very intent on following that path.”

Iron ore shipments to China hit a record in December as the world’s second-largest economy increased its steel exports to India, Frydenberg said.

Though other resource-dependent economies such as Brazil and Canada were technically in recession last year, Australia continued to grow strongly, creating 300,000 jobs.

The Australian economy was diverse, with strong growth prospects in tourism as the Indian middle class grew, he said.

Frydenberg’s comments came as consumer confidence showed signs of suffering amid heavy losses on the Australian sharemarket in recent weeks.

Consumer confidence fell 3.5% in January, according to the Westpac/Melbourne Institute index of consumer sentiment released on Wednesday, a four-month low.

The index slumped to 97.3 points, indicating there are more pessimists about the economy than optimists.

Figures on Tuesday showed China’s annual economic growth had slowed to a 25-year low of 6.9%.