Barefoot Investor: Australia’s Economy Can ‘Ride Out’ Global Markets Turbulence, Swan Says

Australia’s economy can “ride out” the turbulence in global markets because of its strong outlook and the continued growth of China, the country’s biggest trading partner, Treasurer Wayne Swan said.

“Australia has very low public debt, low unemployment, a massive pipeline of investment and we expect to bring the budget back to surplus next financial year,” Swan said in an e-mailed statement yesterday. While Australia isn’t immune to what happens in the rest of the world, “the prospects for our region remain much stronger” than for Europe and the U.S., he said.

The global economic outlook will remain uncertain for some time as the U.S. and Europe seek to reduce debt and make their fiscal budgets more sustainable, Swan said. There’s good reason to be “optimistic” about continued expansion in China as incomes improve, he added.

About $6.8 trillion was wiped off the value of global equity markets from July 26 through Aug. 11 as Europe’s debt crisis deepened and investors speculated the U.S. economy, the world’s biggest, may contract. U.S. stocks fell for a third straight week, including the biggest one-day drop since 2008, after Standard & Poor’s reduced the nation’s credit rating to AA+ from AAA on Aug. 5.

The Australian dollar dropped 0.8 percent to $1.0355 in the five days to Aug. 12, after reaching a record $1.1081 on July 27. The Australian 10-year bond yield fell to 4.43 percent, the lowest daily closing level since April 2009, sliding four basis points since Aug. 5 in a third week of declines.

The turmoil will make it more difficult for the government to achieve its target of returning its budget to surplus in the 2012/13 financial year, Swan said.

New Zealand

New Zealand’s budget is still expected to return to surplus by 2015 as economic growth is spurred by demand for commodities from China’s swelling middle class and rebuilding the city of Christchurch after the nation’s deadliest earthquake in 80 years, Prime Minister John Key said yesterday.

“Obviously if there’s a strong United States and a strong Europe, that helps New Zealand, and if there’s not, that can have some impact,” Key said in an interview broadcast on Television New Zealand. “But there are a number of different factors going on.”

New Zealand’s economy is recovering after growth of 1.1 percent last year amid a lull in consumer and business spending. A magnitude-7 quake near Christchurch, the nation’s second- largest city, on Sept. 4 disrupted spending before a temblor on Feb. 22 killed more than 180 people and shut the central business district.

The Treasury estimates the combined cost of the earthquakes will be about NZ$15 billion ($12.5 billion).
2008 Crisis

New Zealand’s gross domestic product shrank for five straight quarters from the start of 2008 amid the global credit freeze. Australia avoided recession in the wake of the collapse of Lehman Brothers Holdings Inc. in 2008, with just one quarter of contraction.

Australia will benefit as expansion in Asian economies spurs demand for commodities as well as tourism, education and luxury goods, Swan said.

“The tyranny of distance is really a thing of the past for Australia,” Swan said. “With the shift in global economic weight from West to East, we’re finally located in the right part of the world at the right time.”

Europe and the U.S. are both facing a “sustained period of sluggish growth,” he said.

China’s gross domestic product will increase 9.3 percent in 2011, according to the median forecast of 10 economists surveyed by Bloomberg. That compares to predictions of 1.8 percent growth in the U.S. and 2 percent in Europe. (Bloomberg)


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