Wednesday, August 19, 2009

Australian Economic Forecast

The Australian economy doesn't get much attention in the American press. Today, however, I found an interesting article from Forbes on the future of the Australian economy.

The good news is that the Australian economy is nowhere near as over-leveraged as the American and British economies are.

Australian activity has remained surprisingly strong during the global crisis. Monetary and fiscal policy were aggressively switched to stimulus at an early stage. Australian banks were never exposed to the same degree of risky lending as their counterparts in the United States and the United Kingdom. The strong fiscal position enjoyed by the government enabled it to extend guarantees to various parts of the financial system at relatively low cost.
The bad news?

Over the past two years China's share of Australia's merchandise exports has risen from 15-20%.

The sharp fall in Chinese exports has not resulted in lower demand for Australian resources, as China's fiscal stimulus has focused on infrastructure, for which Australia is a supplier of raw materials. Although export prices are down from 2008 peaks, total Australian merchandise export volumes have risen in the nine months to June.
So Australia is heavily dependent on the Chinese market for raw goods. Lately, the media has been printing all kinds of troubling news concerning the Chinese economy ... everything from the macro effects of slumping American consumption to the decline in the real estate markets of Shanghai and Beijing. However, China is importing raw goods that are to be used in infrastructure construction. As long as the Chinese government keeps up its fiscal stimulus program and keeps it oriented towards infrastructure construction, the Australian economy should be, more or less, fine.

So, for now, I think the Australian economy will face some pain, but, not quite on the level that the U.S. and U.K. are facing. Of course, if the entire global financial system melts down, this all goes out the window. That's a big "if" of course.

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