Australia: Crisis? What Crisis? Notes from the Lucky Country

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Researched by Industrial Info Resources (Sugar Land, Texas)--The Australian economy is ticking along quite nicely, despite the crisis that began enveloping most Western economies in late 2008. While Australia's economy grew slightly over the four quarters to June this year, the world's seven most developed economies contracted nearly 5%. Although Australia's terms of trade have fallen approximately 20% since the inflated peak early in 2008, they are still about 45% above the long-term average and look likely to strengthen through the immediate to mid-term future.

Several factors have contributed to this. Australia was able to support expansionary fiscal policy measures because the country's budget was in surplus, lacking any debt. Additionally, the Australian government acted early in implementing a substantial monetary 'rescue package.' Most importantly, Australia benefitted from the resilience of its trading partners, in particular China, which benefited from its own internal rescue package. Although China's economy slowed sharply in the latter part of 2008, it quickly resumed very strong growth and will easily achieve an official figure of 8% percent growth this year, with the unofficial figure possibly closer to 10%.

China's internal injection of funds was weighted toward infrastructure projects designed not only to provide direct employment, but also to avoid job losses in other supply industries such as steel production. The demand for resources such as iron ore, coking and metallurgical coal was also stimulated, after suffering what was in hindsight only a brief hiccup.

Re-enter Australia. The effect of this resurgence of demand from China is particularly evident in the resource-orientated state economies of Western Australia and Queensland. Thanks in large to this continued Chinese demand, Western Australia is forecast to enjoy almost 4% GDP growth in 2009, while Queensland is likely to be only a little less than this. Of Australia's $340 billion worth of current planned and active projects, Western Australia and Queensland account for $222 billion of these.

Like China, a significant portion of the Australian government's rescue package went to infrastructure projects in the resource industry, where the multiplier effect would be greatest. The funded infrastructure projects have and will go no small way in helping the economic justification for substantial proposed private-industry projects.

For instance, in Western Australia, the federal government (with some state funding) will provide about $680 million or 22.5% toward the construction costs of the $3 billion Oakajee Port and Iron Ore Terminal on the midwest coast. In turn, this major piece of infrastructure will allow several major iron ore mines to be built and the potential of other major mines to be maximised. The total flow of expenditure involved will be in the tens of billions of dollars.

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