Australia’s small economic miracle

The Australian economy continued to grow significantly in the fourth quarter of last year. Meanwhile, the record low interest rate is expected to last for at least another three years.

Australia’s economy is recovering at a fast pace. Chancellor of the Exchequer Josh Frydenberg said the Fifth Continent “is leading the world” with regard to its economic and health policies. Frydenberg presented figures for the fourth quarter of last year Wednesday morning: Australia’s economic output fell just 1.1 percent short of the same period last year, which was not yet marked by the Corona pandemic. Australia, meanwhile, primarily measures growth from quarter to quarter.

In the third quarter of 2020, the world’s No. 13 major economy was up 3.4 percent, and now it’s up another 3.1 percent. “This is the first time in history that Australia has recorded two consecutive quarters of economic growth of more than 3 percent each,” Frydenberg said. “The Australian economy has recovered 85 percent from its Corona-induced slump, six months earlier and twice as fast as we expected in October 2020 when we presented the budget.” For the full year 2020, Australia contracted by 2.4 percent.

Record low interest rates continue to drive property and equity prices

Last week, ratings agency Fitch had projected a 2.8 percent drop, but had continued to give Australia its top “AAA” rating – though the average for “AAA countries” shrank by 3.8 percent. But the performance of even the commodities industry, so important to the country and the world, fell in 2020 for the first time since 2003: after growing 5.7 percent in 2019, it lost 0.9 percent in the last Corona year, especially because of falling coal sales. Currently, the industry is driven by record prices for ore or copper. The bottom line, however, is that the mineral-rich country once again remains the best-developing economy among the leading economies. The government in Canberra has now cut direct Corona economic aid by half. Analysts now expect a growth rate of around 4.5 percent this year.

Support is coming from the central bank. Its record low interest rate of 0.1 percent will remain in place “until at least 2024,” its governor Philip Lowe just assured. The economy is booming. Loans are being taken out, people are being hired, and even truck hires from Sydney are back in high demand. The bank will do everything it can to keep interest rates down. The goal is to keep the inflation rate “sustainably” in the corridor between 2 and 3 percent. Even a short-term jump above the 2 percent hurdle will therefore not be enough to trigger a rise in interest rates, he said. “To achieve this, wage growth will have to be significantly higher than at present,” the central bank said. At the same time, it hinted at adding another 100 billion Australian dollars to the bond buyback program, which currently stands at 200 billion Australian dollars (129.30 billion euros).

However, this record low interest rate is also continuing to drive up property and share prices in Australia: Australians subscribed to a record 29 billion Australian dollars worth of new loans in January, an astonishing 40 percent more than in January last year. House prices rose another 2.1 percent, the fastest in 17 years. Analysts, however, expect house prices to rise again this year in a corridor between 9 and 13 percent.