Australia's economy could be going under

Australia – the “lucky country”, which has gone 28 years without a recession – may yet run out of luck as its economy falters.

Circular Quay in Sydney, Australia. © iStockphotos

Australia's "terrible" second-quarter GDP figures are "among the worst we have seen this century", says Greg Jericho in The Guardian. The economy expanded by a mere 0.5% in the second quarter, implying an annualised rate of 1.4%.

Still, at least Australian homeowners have something to cheer about. A credit-fuelled housing bubble has been hissing air for much of the past two years, with prices falling an average of 7.3% in the year to May. Still, nationally, prices rose 0.8% last month, the biggest jump in two years, reports James Hall for news.com.au. In Sydney median prices picked up 1.9% in the three months to August. That should, in theory, make consumers feel wealthier and more willing to spend.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

Lucky country is out of luck

By mid-2015, interest-only loans made up a staggering 46% of all new mortgages, according to Bloomberg data. That prompted a clampdown by authorities on loose lending practices. Yet household debt levels remain equivalent to an eye-watering 120% of GDP. That compares with 87% in the UK and just 53% in Germany.

What's more, with wage growth stagnant, "Aussies just aren't spending or eating out the way they used to", says Jack Derwin on Business Insider. Retail sales fell 0.1% in July, with a larger 0.3% fall in discretionary purchases suggesting that households are actively tightening their belts.

Advertisement - Article continues below

A record 40% of Australian exports headed to China in June, reports David Uren on aspistrategist.org.au. "A decade ago it was just 20%." That includes massive shipments of iron ore and coal, as well as consumer goods such as wine and baby formula.

China's slowdown leaves Australia dangerously exposed, says Martin Farrer in The Guardian. One forecast suggests that if the Middle Kingdom's economic growth halved to 3%, then "Australia would stand to lose... more than half a million jobs".

The central bank has slashed interest rates to 1%. Yet cheap debt caused many of the current problems in the first place. With little left in the monetary toolbox, it falls to the government to serve up a rescue, says Matt Wade in The Sydney Morning Herald. That means more spending on infrastructure and "supply-side" measures such as tax reform to encourage business investment and employment. The government shows little inclination to loosen its tight fiscal rules, however. Get set for quantitative easing.




How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Stock markets

The British equity market is shrinking

British startups are abandoning public stockmarkets and turning to deep-pocketed Silicon Valley venture capitalists for their investment needs.
8 Nov 2019
Stock markets

There are lots of reasons to be bearish – but you should stick with the bulls

There are plenty of reasons to be gloomy about the stockmarkets. But the trend remains up, says Dominic Frisby. And you don’t want to bet against the …
17 Jul 2019

Good news on jobs scares US stockmarkets

June brought the best monthly US jobs growth of the year, but stockmarkets were not best pleased.
11 Jul 2019

Most Popular

UK Economy

Britain has a new chancellor – get ready for a major spending splurge

The departure of Sajid Javid as chancellor and the appointment of Rishi Sunak marks a change in the style of our politics. John Stepek explains what's…
14 Feb 2020

Money Minute Friday 14 February: The latest from RBS, Britain's state-owned bank

Today's Money Minute previews results from RBS – Britain’s state-owned bank – and from pharma giant AstraZeneca.
14 Feb 2020

Living on a houseboat: the pros and cons of a floating home

Living on a houseboat sounds romantic and peaceful. But it’s not as straightforward as it looks, says Nicole Garcia Merida
14 Feb 2020

Is 2020 the year for European small-cap stocks?

SPONSORED CONTENT - Ollie Beckett, manager of the TR European Growth Trust, on why he believes European small-cap stocks are performing well.
12 Feb 2019