Economists Hail Decision To Quit

The Age

Wednesday November 26, 2008

By TIM COLEBATCH, ECONOMICS EDITOR, CANBERRA

ECONOMISTS last night praised BHP's directors for having the wisdom to know when to give up - but warned that the decision highlighted the uncertainty about China's economy.

John Edwards, chief economist for HSBC Australia, said problems with funding the bid in the current environment and the sharp turnaround in prospects for commodities, made it a sensible call.

"Given the blow-out in spreads it was facing, given the decline in BHP's share price, and given the decline in spot prices for coal and iron ore, to withdraw the bid is just facing reality," he said.

Westpac chief economist Bill Evans agreed with the board's call, but said it also reflected the extraordinary speed with which China's prospects had deteriorated in recent weeks.

"The more you look at China, the more worried you get. Twenty-five per cent of their investment is in housing and property, and domestic policies are really constraining that sector," he said.

"It's been a shock to see their economy turn so quickly and there's uncertainty about the size of their stimulus package.

"I think it's a responsible decision."

The World Bank yesterday forecast China's growth to drop to 7.5 per cent in 2009, while its twin, the International Monetary Fund, predicted 8.5 per cent growth - but warned that this depended on the effectiveness of its stimulus package.

The OECD last night predicted China's growth to fall to 8per cent in 2009 and 9.2 per cent in 2010.

"Global uncertainties and the correction in the domestic housing market will restrain investment spending, keeping domestic demand soft into the first half of 2009 before it recovers gradually into 2010," the OECD said.

It forecast that the OECD area would be in recession in 2009. Output would slump 0.4per cent, with Australia among just 10 OECD countries to keep growing.

© 2008 The Age

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