Is The Australian Economy Losing Momentum?

2007 was the 17th year of uninterrupted growth for Australia. But what is likely to happen in 2008? Will the $1 trillion economy lose its momentum? And what may drag the Australian economy down?

Since June 2007 the RBA has increased interest rates four times and the lagged impact of these hikes is likely to cease spending by a heavily indebted household sector through 2008. In fact, interest payments accounted for 11.7% of annual household disposable income.  In addition, March home-building approvals fell six times as much as economists forecast and sales of newly built houses decreased for a second month. Furthermore, consumer confidence dropped in April to the lowest since 1993, and companies remained pessimistic for a third consecutive month in March.

Indeed, the outlook for the Aussie economy doesn’t look promising and its Gross Domestic Product is expected to slip in 2009 as a response to weaker growth in most Asian economies. For instance, new export contract terms for coal and iron ore are negotiated with Asian countries only once a year, and prices negotiated for annual contract period starting April 2009 are likely to be lower than those in the current negotiations for the year starting April 2008.

Anna Fedec,
5/18/2008 9:42:27 AM