Can Australian Economy Slowdown?

While most of the economies are fighting with recession or weaker growth, Australia is booming. In fact, 2007 was its 17th year of uninterrupted growth. But what causes this phenomenon and how much longer can it last?

In the third quarter of 2007, the Australian economy grew 4.3 percent from a year earlier, the fastest pace in three years. Moreover, this year gross domestic product is forecast to grow more than 4 percent. The main factor behind the strong growth has been the exports of commodities and agricultural products to China and other fast-growing economies. It is estimated that exports of raw materials such as iron ore and coal contribute about 17 percent to GDP. Yet, the strong demand for Australian resources is making pressure in the overall level of prices and bringing its labor force close to full capacity. Australia's unemployment rate fell to the lowest since 1974 and annual core inflation rose to 3.8 percent, the fastest pace in almost two decades.

In order to fight inflation the Reserve Bank of Australia’s has already raised rates three times in the last six months, pushing the price of money to its highest level in nearly 12 years. However, higher rates may be risky for the Australian economic growth in the years to come. Household and business spending surveys are already showing some early signs of slowdown. In February, for the first time in 15 months, consumer confidence index turned negative and the latest survey on business sentiment dropped to the lowest level since the September 11 terrorist attacks in the U.S.

Anna Fedec,
2/18/2008 3:18:59 PM