Australia: the 'lucky country’s' luck runs out

The global downturn has finally caught up with Australia.

The Australian economy has expanded for 22 years in a row. It avoided recession in 2009 thanks to China's appetite for its many raw materials. But the lucky country' is now facing tougher times, and the change of government will make little difference to the country's prospects, says Martin Whetton of Nomura Securities.

Now that Chinese growth has slowed and it is trying to promote consumption rather than investment, demand for commodities has cooled and Australia can no longer rely on its mining sector to keep the economy going. Unfortunately, policymakers "have been trying without much success" to galvanise other potential components of GDP growth, says Assif Shameen in Barron's.

The shrinking manufacturing sector has been hit by the high Australian dollar of the past few years, a result of the commodities boom. Consumers, having racked up high debts in the previous two decades, are not going on a renewed spree, even though interest rates are at historic lows. Low rates have breathed a little more air into the housing bubble, but not spurred much spending. Retail sales grew at their weakest pace in half a century in the year to July.

Unemployment is ticking up and "as fiscal revenues shrink, it will become harder to keep the budget deficit in check", as the FT points out. The surplus of the past few years has already melted away and the annual overspend will total 2.5% of GDP this year. All told, growth is set to halve this year from last year's 4% pace and is not expected to pick up soon. The rich world's star performer of recent years looks stuck in the doldrums.

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