Is Australia on the Way to Recovery?

In the first quarter of 2009, the Australian GDP unexpectedly rebounded, growing at 0.4 percent. Is this temporary improvement or the indication of stable recovery?

At Trading Economic we think that the force behind Australia’s resistance to the recession is the combination of a few factors like stronger state of the Australian banking system, monetary policy easing, significant fiscal stimulus and rebound in exports to China. In fact, since last September, the interest rate has been lowered by 4¼ percentage points and, unlike in many other countries, the bulk of this reduction has been passed on the households. Moreover, household spending is being boosted by tax bonus payments and government transfers. In March and April consumers received as much as A$950 ($705) in cash handouts and household disposable income was up or 10 per cent in real terms, over the year to the fourth quarter. Also, housing market seems to be recovering. House prices now appear to be rising and although, sales of new houses fell in May, overall sales were still up 15 percent on their low point in December.

However, there are main reasons to be concerned. After years of very high levels of investment, many firms have scaled back their development plans due to the general deterioration in the economic outlook, a significant increase in uncertainty and risk aversion, and tighter financial conditions. Also, reflecting the slowing in the economy, labor market conditions have weakened. The jobless rate rose to 5.8 percent in June, the highest level in six years. Lastly, we should also think what may happen to the Australian economy once the effect of government transfers will fade away and the China’s economy won’t be fuelled anymore by its stimulus package.

Anna Fedec,
6/4/2009 3:30:10 PM