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Australian economy on right path to recovery
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17:22, July 07, 2009

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With GDP growth of 0.4 percent in the first quarter of 2009, the Australian government's stimulus plans seem to be working.

Economists are optimistic that more positive effects of the stimulus packages will be seen later this year or in early 2010 as conditions for global economic recovery are being witnessed, such as falling oil prices, decreasing inflation and falling bond yields.

The International Monetary Fund (IMF) forecast in April that Australia's GDP would register a negative growth of 1.4 percent in 2009. Some Australian non-government organizations believe the GDP this year will decrease by about one percentage point.

The Australian government, however, is optimistic about a rebound. Treasurer Wyne Swan said in the May budget for the 2010/11 fiscal year that the country's GDP will climb to 2.25 percent, higher than is forecast by the IMF.


In combating the crisis, the authorities have adopted a flexible monetary policy. The Reserve Bank of Australia cut the cash rate from 7.25 percent to three percent, the lowest level ever seen, registering a sixth consecutive downgrade since last September.

In fiscal policies, the Rudd Government announced a 10.4 billion-dollar (8.23 billion U.S. dollars) Economic Security Strategy last October to offer allowances to low income groups and first-time home buyers.

In February this year, the government said 42 billion dollars (26.7 billion U.S. dollars) would go toward granting tax refunds to middle and low income tax payers.

In May, a 17.4-billion U.S. dollar Nation Building Infrastructure program was launched to provide funds for roads, railways, ports, the Clean Energy Initiative, universities, research, hospitals and broadband.


Australian economists have said the country is suffering from a financial crisis which differs from the U.S. subprime mortgage crisis. Therefore, many predictions about the economy will depend on what happens to the global economy, and particularly the economy of China, Australia's largest trading partner and second largest export destination.

If China's economy is to slow dramatically, Australia's economic downturn could be far worse than expected. Again, if China can rebound, Australia will be a key beneficiary because of increasing demand for its resources and energy.

But analysts said the biggest question hanging over the economic growth forecasts is the unemployment rate. If unemployment is to rise sharply from the current level of 5.7 percent, households will be hit hard and the recession could be deeper. Households are widely described as the Achilles' Heel of the Australian economy.


Economists have said that if the economy is to maintain a sustainable recovery in the latter half of the year, more efforts must be made to further encourage innovation just like in Japan and the U.S. decades ago.

The government needs to bolster the enthusiasm of entrepreneurs who are committed to innovation, and business must be fairly rewarded for research and development to better meet the needs of clients.


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