Some positive news on the Australian economy

wukong

Some positive news on the Australian economy just in from the ANZ released in a presentation to their board on the 19th January by their Chief Economist Saul Elsake:

Q: Will Australia experience a recession in 2009?
A: Saul Eslake:
"Possibly not, if a recession is defined as ‘two or more consecutive quarters of negative GDP growth’
      Australia’s faster rate of population growth than most other countries makes negative real GDP growth less likely, everything else being equal
      everything else isn’t equal as between Australia and other Western economies
      the Government is likely to time its fiscal policy initiatives with a view to reducing the likelihood of consecutive quarters of negative GDP growth
       we currently expect only one quarter of negative real GDP growth (in the June quarter), although some others will come very close"

Our Commodity markets have been noticeably resilient to the stream of bad news regarding industrial activity and trade.
Industry data points to an abrupt downturn in the commodity intensive sectors of the Chinese economy, yet markets appear to have taken the grim news largely in their stride, suggesting most of it had already been priced.
Australia’s housing market and household finances are in better shape than America’s. Australia’s economy has thus far held up considerably better than America’s.
Demand from first-time homes buyers is rising, but growth in housing supply is likely to slow further. Monetary policy is ‘working’ more effectively in Australia than in the US, in part because the banking system is in better shape

Q: Is Australia just lagging the United States, or are there some more fundamental differences?
A: Saul Eslake:
Australia’s economy is yet to feel the full effects of the downturn in the US, European and north Asian economies
in particular, the impact of the 11% decline in (US$-denominated) export commodity prices has yet to be felt, let alone the further ~32% expected over the first three quarters of 2009 (as contract prices are renegotiated downwards)
most businesses have been taking a ‘wait and see’ approach to their headcount

There are nonetheless some fundamental differences between Australia and other overseas economies -
Australia has not had a banking crisis in the same sense as the US and Europe
Australia’s housing market has thus far proved to be more resilient than those of the US & Europe – for good reasons (shortage of stock relative to underlying demand, relatively low number of ‘forced sellers’) – and should remain so provided

unemployment does not rise sharply
Policy responses have been more effective than in other countries
the RBA has cut rates more quickly than most other central banks (partly but not only because it had more room to)
more importantly, cuts in official interest rates have for the most part been reflected in
lower rates paid by end-borrowers (unlike the US and UK in particular)
fiscal policy has responded more quickly and in a more targeted fashion
The sharp fall in the A$ (with more to come in 2009) has provided an additional ‘buffer’ against contractionary external forces
for example commodity prices have actually risen in A$ terms since last July
Australia’s population growth rate is 0.6pc pa above that of the US, 1pc pa above Europe’s and 1½pc pa above Japan’s