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Chief economist update: Pandemic, what pandemic?

Like the Energizer bunny, the price of iron ore keeps on going and going and going ... up.

And this, despite the coronavirus pandemic still doing the rounds on Earth - ongoing first wave or second wave - with worldometer.com's latest stats showing more than 34 million earthlings afflicted to date, including 7.7 million active cases and over a million deaths.

Iron ore prices ended the first nine months of 2020 at US$124.02/metric tonne, representing a 35.5% rally from the start of 2020 and a whopping 58.3% surge from this year's low of US$78.33/metric tonne it plumbed in early February, after China put Wuhan in lockdown.

Being the biggest iron ore consumer (69.1% of total world iron imports), what happens to China dictates the direction of the price of Australia's biggest commodity export.

China's success in containing the virus post-haste and subsequent lifting of restrictions on social interaction and business activity has prevented the economy from succumbing to the recession that has struck most nations around the world. As the OECD's September 2020 Economic Outlook Interim Report puts it: "All G20 countries with the exception of China will have suffered recession in 2020."

Chinese GDP grew by 3.2% in the year to the June quarter after contracting by 6.8% in the first. Recent stats indicate the economy continuing to move onwards and upwards. The country's official manufacturing PMI rose to a reading of 51.5 in September from 51.0 in the previous month, for its seventh straight month of expansion since the record low reading of 35.7 in February. The non-manufacturing PMI improved even more - to 55.9 from 55.2 in August and the record low 29.6 of seven months before.

The revival of the world's biggest iron ore importer's economy could only mean good tidings (or at least, a helping hand) to Australia -- the world's largest iron ore exporter -- which accounts for around 50% of total world iron ore exports.

This becomes especially crucial at a time when the Morrison government is poised to deliver more fiscal stimulus to the Australian economy.

The continued buoyancy in iron ore prices offer it extra spending power.

In its Mid-Year Economic and Fiscal Outlook (MYEFO) handed down in July and incorporating the coronavirus pandemic, it maintained its assumption that iron ore prices will drop to US$55.0 per tonne by the end of the December quarter 2020.

Anything could happen between now and the end of the year but given China's strengthening economy, chances are iron ore prices would remain around the US$100/tonne mark, if not higher - supporting Australian government revenues.

Iron ore prices would also remain buoyant should China's economy weakens as Beijing tries to mitigate any slowdown with increased infrastructure spending.

Australia's third arrow continues to do its job.

Read our full COVID-19 news coverage and analysis here.

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