How has Australia fared?

procure11

I have noticed that despite the talk of a global recession,some countries like China,Canada and Australia has contined to brace the storm and performed relatively well despite the downturn.
I am particularly impressed with Australia because ( unlike China that has a competitive advantage in terms of labour costs/strong market base/vast amount of credit and Canada that has a relatively prudent regulatory framework for its banking and financial sector that prevented her from falling in the same mess that is evident in most countries) but I am yet to understand how Australia has escaped being in a recession so far.

Why is this?

PhiliousPhogg

Interesting question. Growth has stalled over the last 9-12 months & is about 0-0.5%. It had negative growth in Q4 last year but no actual recession. Unemployment is currently at 5.8% & hasn’t gone above this. Base interest rate 3% & expected to rise in October or in the next 6 months. Latest inflation figure is 1.7%.

Now aren’t they rosy figures?

From what I can see it’s down to the banking sector & the economy being relatively unexposed to the source of the credit crunch in the States.

It seems the banking sector was well positioned for the credit crunch, much like in Canada. Australia obviously would not have the same exposure to the credit crunch in the States & so has fared much better. Part III of this IMF analysis makes comparisons of the banking sector to Canada’s. A week old report by Global Finance Magazine on the world’s safest banks now has the Australian Big 4 at numbers 11, 12, 15 & 16, up from 18, 19, 28 & 29 in 2007.

Property prices especially residential property have stood up well but could take a hit soon. A boost to the First Time Home Owners Grant of $14k/$7k for new/existing homes introduced last Oct (on top of an existing $7k for the existing grant) will be halved as at 1 Oct next & abolished at 31 Dec ‘09. Mortgage demand has been strong this year & should fall off when the grant ends. I’m interested to see how it goes, especially since Table III.8 from the same report above shows mortgages to total loans of 53% in Australia, way above the rest of the world.

The Australian government as been playing up the success of the stimulus measures over the last year & the (atrocious) media has been going along with it, but the package has been no greater than in other countries at around 4.2% of GDP (& the conservatives are harping on about how the debt is going to be reversed).

There have been the same issues in the financial sector as in the rest of the world with small intermediary debt houses going bust or being taken over & the banks have been tightening up credit policy and laying off staff but it’s been more a reaction to the lessons of the credit crunch than actually having no choice other than to do so.

One would think the drop in commodity prices would have an effect since there is such a huge mining industry, but there are mixed reports. Much is made of dependency on demand in China but it’s actually not that significant. I saw one interesting statistic comparing Australia’s percentage of exports to China with Canada’s percentage exports to the States. About 25% of Canada’s exports are to the US while only about 5% of Australian exports go to China.

PhiliousPhogg

Brief Economist article on economy & politics.

SLUSK

procure11 wrote: »

I have noticed that despite the talk of a global recession,some countries like China,Canada and Australia has contined to brace the storm and performed relatively well despite the downturn.
I am particularly impressed with Australia because ( unlike China that has a competitive advantage in terms of labour costs/strong market base/vast amount of credit and Canada that has a relatively prudent regulatory framework for its banking and financial sector that prevented her from falling in the same mess that is evident in most countries) but I am yet to understand how Australia has escaped being in a recession so far.

Why is this?

Australia is a country that produces real stuff, they are big into mining, farming and so on. With commodities prices on the rise Australia should fare well. Commodities is the place to be, stay out of financials.

SkepticOne

SLUSK wrote: »

Australia is a country that produces real stuff, they are big into mining, farming and so on.

I don't think their farming is economical being dependent on subsidies for its existence.

SLUSK

That is the same case with farming in the EU and the US.

SkepticOne

SLUSK wrote: »

That is the same case with farming in the EU and the US.

But farming in the EU would probably survive in some form or another if subsidies were removed, like it has in New Zealand. Farming, at least according to Jared Diamond, would not exist in Australia without subsidies due to the poorness of the land.

SLUSK

This article is fairly old but at least back in 2003, farming subsidies in Australia were low by international standards. http://www.abc.net.au/rural/news/stories/s881685.htm