The daily news is filled with mixed reports of financial downturns and market recoveries, but we often hear that Australia is better placed than much of the world. But why is this the case? And what impact does our relatively strong position have on Australians?
The global economic slowdown in late 2008 and early 2009 was severe, however recent reports have shown that the outlook for the global economy is gradually improving.
Within this global context the performance of the Australian economy has been relatively impressive. While we can say that the global recession has also meant a slow down here, the downturn in Australia looks like it will turn out to be pretty mild, both relative to the rest of the world and compared with other recessions that Australia has experienced.
Lower interest rates
There are a number of factors that have helped Australia weather the worst of the global recession. And key to Australia's financial resilience is the strength of our financial system. This has been important for two reasons. Firstly, the strength of the local banking system has meant that, unlike in many countries, such as the US and UK, the government has not been called upon to directly support financial institutions. This has significantly lowered the financial cost of the 'crisis' to the Australian taxpayer. Secondly, the strength of the banking system has made it much easier for the banks to pass on lower interest rates to their clients (that is, mortgage rates have fallen significantly).
This brings us to the second positive contributor for the Australian economy, the fact that monetary policy has been eased aggressively, taking the cash rate from 7.25% to a very low 3.0%. This has helped households and businesses to reduce their borrowing. In addition, fiscal policy has also been eased significantly, allowing the government to inject more money into the economy.
The combination of both the monetary and fiscal policy stimulus as well as lower petrol prices) has helped the Australian consumer to spend at a greater rate and has also helped build a higher level of savings and consumer confidence.
Exporting to the world
The other thing that has really helped the Australian economy has been the performance of exports, which have held up remarkably well. The more significant impact on exports has been, however, in our relationship with China. Strong demand for raw resources from China has provided an important source of export income for Australia.
Australian economic conditions could still be difficult over the remainder of 2009. There are some concerns that the end of the stimulus packages and an expected rise in interest rates could see some of the recent economic momentum suffer. However, Australia's relative performance continues to look good.
Overall, with more positive signs for the global economy and a return to better consumer and business confidence, the worst of the economic news seems to be behind us for now. Markets have been responding positively to this change in sentiment and the outlook for Australia continues to look positive.
Source: www.yahoo.com.au
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