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Last updated: September 2, 2009 10:56 pm
They don’t call it the lucky country for nothing. Not only did Australia dodge a technical recession by posting first-quarter growth, its second-quarter number – a 0.6 per cent expansion of the economy – is about double most estimates. But Wayne Swan, treasurer, chuckling on Wednesday about defying gravity, should not congratulate himself or his colleagues on any staggering strokes of genius.
The first key component of recovery – aggressive monetary easing, taking interest rates to a 49-year low – replicated moves seen round the world. Ditto tax cuts and cash handouts, which took the sting out of the consumption shock. Additional fiscal stimulus should result in the largest budget deficit on record this year, but it is the previous government that deserves plaudits for running a surplus in the first place.
Credit for the second component – a solid banking system – belongs in large part to Treasurer Paul Keating instituting the so-called “Four Pillars” policy in 1990. Shielded from takeover, the banks have never needed to crank up the riskometer. Structured finance exposures are small, relative to international peers, as are overseas interests: the big four have a 10th of their assets, on average, outside Australia and New Zealand. The property sector, underpinned by stable lenders swiftly passing on rate cuts, has wobbled but not yet fallen over.
Third, and perhaps most critical, is Australia’s relationship with China, now vying with Japan as its most important two-way trading partner. As China’s preferred supplier of rocks and crops, Australia has piggybacked off a stimulus package roughly nine times bigger than its own.
It is not, however, a sure bet that interest rates will be raised. Unemployment, real incomes, the current account deficit and terms of trade are all heading in the wrong direction. Downward revisions of Wednesday’s growth figure are possible. Still, if any government can justify a spring in its step, it is Australia’s.
The Australian economy expanded at a higher-than-expected rate in the three months to June, helped by robust contributions from the household sector and business spending on machinery and equipment.
The Australian Bureau of Statistics said on Wednesday that seasonally adjusted gross domestic product grew 0.6 per cent in the second quarter compared with the previous three months.
Economists had been looking for a figure of closer to 0.2 per cent after trade figures announced on Tuesday showed an unexpectedly sharp fall in exports during the three months to June.
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