By: Dr. Mike Campbell
Australia’s was the only major economy not to go into recession during the global financial crisis. However, results just released for the first quarter of this year show that the Australian economy has contracted by 1.2%.
Australia is a land rich in natural resources and export demand in emerging economies such as China and India has been responsible for much of its growth. However, Australia suffered from a destructive cyclone and extensive flooding earlier in the year and the government say that this is partially responsible for the contraction seen. The states of Queensland and Western Australia were worst affected by the natural catastrophes; both are important states in terms of natural resources. The shrinkage of the Australian economy in the last quarter has been the worst seen for twenty years.
Long Term Expectations
Australia is also susceptible to weakening demand in her exporting markets as growth there slows. The decline in economic activity in Australia was not as bad as some analysts had expected; indeed the Australian Dollar rose by a further 0.6% against the Greenback to stand at 1.0723. Investors seem to have taken the view that the natural disasters were a blip on the economic chart and that Australia’s outlook remains strong.
The impact of the disasters on the mining industry has yet to be fully absorbed. When the sector returns to pre-flooding levels of output and once reconstruction of flood and cyclone damaged structures, economic growth is expected to be back on track again.
Australia is a major exporter of coal and it is likely that demand will surge as countries, such as Germany, take political decisions to distance themselves from nuclear power production in the wake of the Japanese nuclear disaster.