How Australia Rode Out Economic Storm

I would like to make a few comments over some features of an economy that is increasingly attracting my attention: Australia.

Crisis is past and we can today make a balance of what happened. We can also take the time to observe the aftermath in each country's economy, what policies were applied and which were the results for each of them. When I take the time to make such study I find myself with an economy that made “ole!” to the crisis as the bullfighter with his red cloth does to the bull: Australia.

Australia, a parliamentary monarchy that in someway reports to Queen Elizabeth II, independently from the UK. If we look back at History for a moment we can mark out how in the evolution of kingdoms, empires and dominant nations there always was a common thread. Following this pattern we find nations that attained the status of a giant and eventually passed the baton to the next, another nation somehow related to the previous, generally by land or commerce. Thus, following the last move, the USA followed its former metropolis Great Britain.

Australia was also a British colony. And my dear historian friend Javier Páramo has told me how there are those who say that this thread is a continuous one that has for centuries traveled through lands and oceans from east to west, with some volatility between north and south. The following is just a supposition of mine but, could we surmise that this conducting thread is going along USA-Japan-China-Australia?

Australia is a huge country with a surface of 7.6 millions square km and a population of 22 million. This country has a GDP of US$ 1.395.000 million which accounts for a GDP per capita of US$ 63.400.

The UN placed Australia second in its last Human Development Index ( 2009 ) and The Economist located it sixth in its Life Quality Index.

This remote country when looked from what was known as the West, US and Europe, has not suffered a recession for the last two decades. And it's been three decades since the financial system was deregulated and the clean floating of the Australian dollar allowed.

Some statistic data:

- At the time being Australia has an unemployment rate of barely 5.3 per cent.

- Its balance of payments has a slight deficit

- Its inflation rate is 2.9 per cent.

With a very low population density in such a vast territory (2.9 inhabitants per square kilometer) Australia holds a great richness in natural resources. Thus, it is not surprising that the biggest component of its exports is the mining sector.

This is the reason why the country's economical cycle is fundamentally guided by the global commodities' cycle, which defines Australia as a “commodity driven economy”. It is hence an economy much dependent on international commerce, dependent on the trade of its natural resources and their derivatives.

Further its currency is intimately related to the mining sector commodities' valuation. The valuation of the Australian Dollar has a positive correlation with the metals' prize (using the CRB Metal Index as a reference). As the prize of metals rises the Australian Dollar gets appreciated, and when they lose value the Australian dollar undergoes depreciation.

Did you notice Australia saw the crisis pass by without barely being affected? The country didn't even suffer a mild recession. Furthermore it was the first country that could afford a raise in its interest rates; the Reserve Bank of Australia was the first one to do so by October 2009.

Australia's economy keeps on growing. During this last crisis private expenditure kept growing in Australia ( it didn't even halt for a moment! ), just as its exports. The home building prizes suffered a small fall but by the time being not only have they resumed the pre-crisis level, but gone beyond it.

Australian's exports, which keep growing, have its gigantic neighbour, China, as its main destination. Over 50 per cent of them are directed to China, following thus a trend which has been growing for the last 10 years, and will apparently keep doing so. To grow increasingly dependent of another country's economy is not necessarily a good thing to do, it makes a country less dependent on its own domestic consumption. Nevertheless we are talking about having China as a neighbour. If we are to choose a country that is well positioned to have as a neighbour, number one has to be China.

Australia is an economy growing more solid by the day, which uses its resources to increase its population's life quality standard. An open economy with a progressively favored currency at a global level. It has a low unemployment rate, a low inflation rate, a low interest rate for the payment of its debts and an intelligent public administration. Great country!

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