Australia economy key focus of election campaign

By Wayne Cole

SYDNEY, July 16 (BestGrowthStock) – The robust Australian economy,
which dodged recession in 2009 and emerged strong from the
global financial crisis, will be key in the 2010 election.

The Labor government, led by new Prime Minister Julia
Gillard, claims much of the credit for this performance, citing
a fiscal stimulus and quick action on guaranteeing bank
wholesale funding.

While these steps helped, analysts give just as much credit
to a sound banking system, steep cuts in interest rates by the
Reserve Bank of Australia and rapid population growth.

Still, the government is counting on the good health of the
economy to secure a re-election, though further interest rate
increases reversing the cuts could dampen sentiment in a nation
with one of the highest levels of home ownership in the world.

Gillard is likely to call an election on Saturday for
August 28, public broadcaster ABC reported on Friday, quoting
sources from the ruling Labor party. [ID:nSYU010288]

Here are some key economic points:

* The economy grew a solid 2.7 percent in the year to
March, again better than most developed nations, and most
forecasters expect an acceleration to around 3.25 percent for
all of 2010 and higher in 2011. This should be the 17th
straight year of uninterrupted growth for Australia, a record
few can beat.

* Having a job is what matters to most people and Australia
scores highly here with 353,000 new jobs created in the past 12
months. Unemployment peaked at just 5.8 percent last year, well
below initial estimates, and has since dropped to a 17-month
low of 5.1 percent. That is almost half the levels in the euro
zone and the United States and even below Japan.

* House prices recovered rapidly from the global financial
crisis to be up 20 percent in the year to March by the
government’s measure, while other industry measures put the
gains at 12 to 14 pct. That, and a bounce in equities, has
helped rebuild household assets. But while rising prices please
those who own a home, it discourages those voters looking to
buy for the first time.

* Neither have home buyers been helped by 150 basis points
in rate hikes from the RBA and independent raises in mortgage
rates by the big banks. These have added around A$3,600 a year
to loan repayments on an average A$300,000 mortgage. The demand
for home loans has tapered off in the past few months while
approvals to build new homes have flagged after a strong run
last year.

* Rising rates had put a crimp on consumer confidence in
the last few months and retailers complain that even steep
discounting is not attracting shoppers. Yet the latest survey
of consumers found a much improved mood this month. New car
sales were still a record for June and online shopping is
booming, suggesting underlying resilience in consumption.

* The RBA hiked in part because of a boom in Australia’s
export earnings as Chinese and Indian demand sent prices for
key resources such as iron ore and coal soaring. The country’s
trade balance has already swung to a large surplus and the
central bank sees a golden decade ahead for Australia, with
trade boosting business investment, profits, employment, wages
and tax receipts.

* Business investment is being driven by the booming mining
and LNG sectors which have a massive pipeline of projects,
including the A$43 billion ($38 billion) Gorgon project. That
is also leading to talk of a two-speed Australia with the
resource-rich states of Western Australia and Queensland
benefiting more than other states.
(Editing by Ed Davies and Tomasz Janowski)

Australia economy key focus of election campaign