Australia
Date: 5 May 2011
The event will be held in Canberra, Australia, with a presentation by distinguished economist Prof. Raghbendra Jha,
Professor and Executive Director, Australia South Asia Research Centre,
College of Asia and the Pacific,
Australian National University, with commentary by Mr. Christopher Woodthorpe,
Director,
United Nations Information Centre.
The Australian economy enjoys continuous positive growth
• Australia marked an extraordinary 17 years of continuous economic expansion. Economy grew by 2.7% in 2010 after a growth of 1.3% in 2009. Australia was one of the few developed countries that had weathered the global economic crisis and achieved positive growth during the economic crisis
• Growth in 2010 was broad-based, with the public sector making a major contribution to the process as the result of a sizeable economic stimulus package. Household consumption was also buoyed by the wealth effect of rising asset prices and by employment growth.
• Strong external demand for raw materials, such as coal and iron ore, helped to generate employment, in particular in the mining sector
• Unemployment rate fell to a low of 5.1% in December 2010,with higher demand for labour.
Modest inflationary pressure
• Inflation in Australia rose to 2.8% in 2010 from 1.8% in 2009, partly reflecting the effect of the looser monetary and fiscal policies of the last two years in response to the global economic crisis.
• The marked increase in global commodity prices in 2010 fed into domestic price pressures.
• Import prices have been, by and large, contained due to the strong Australian dollar; consequently, consumer price inflation has been modest
Export growth turns trade balance into surplus
• The strong demand for raw materials and commodities from the Asia-Pacific region was aided by higher prices of a wide range of commodities
• Growing trading links with Asia-Pacific countries, led by demand from China, supported the continued growth of its exports even during the economic crisis of 2008/09 in Europe and North America. China’s share in Australia’s exports has grown from around 5% to over 20% in the past 10 years. China, Japan and the Republic of Korea together absorbed half of Australia’s exports in 2009.
• Despite its impressive growth and export performance, Australia ran a deficit in its current account of around 2.7% of GDP in 2010, requiring the economy to deal with a significant external financing gap with relatively low domestic savings rate
• The currency appreciated against the US dollar, in line with global trends. It steadily appreciated since the beginning of 2009, by over 50% by the end of 2010.
Fiscal consolidation policies
• Australia’s fiscal position has been relatively favourable compared to the dire state of public finances in many other countries of the OECD.
• The Government ran a budget surplus of about 1.00%-1.75% of GDP for six years prior to the global economic crisis, leaving substantial fiscal space to launch a large fiscal stimulus package to pre-empt the effects of the 2008/09 global recession.
• Fiscal stimulus in Australia amounted to over 4% of GDP in the two years ending in June 2010, above theG20 average. The stimulus package led to a budget deficit of about 2.4% of GDP in 2009 and 4.1% in 2010.
• Damage caused by floods and cyclones in early 2011 will put further pressure on fiscal balance.
Tightening of monetary policy
• Monetary policy has been progressively tightened since October 2009, much earlier than in other OECD countries, with cash rate raised to 4.75% by November 2010. In the view of the Reserve Bank of Australia, the historically favourable terms of trade, increasingprivate investment and a firming labour marketpose a medium-term risk of higher inflation.
Future outlook
• The economy is projected to grow at 2.3% in 2011, driven by continuing investment growth buoyed by the strong demand for mining sector products in the region
• Higher investment expenditures, in turn, should have positive knock-on effects for the rest of the economy. Consequential employment and income growth should support continued growth of household consumption.
• The economic damage and fiscal burden related to the large-scaleflooding and cyclones in Australia in the first quarter of 2011 will have a significant impact on the above prospects. The Government introduced a flood tax for reconstruction.