Australia's economic miracle

A tourist searches for opals at the mining town of Coober Pedy, Oct. 30, 2008. Business opportunities are limited in Coober Pedy, a unique desert town where half the 3,500 residents live underground in "dugouts" or mud caves to escape the summer heat as temperatures can soar to 122 degrees Fahrenheit. (Cecile Lefort/Reuters)

SYDNEY, Australia — This time, inhabitants of the "lucky country" weren't taking their extraordinary good run of economic fortune for granted.

The entire country, it seemed, sweated collectively in the lead-up to the release of the official GDP figure on Sept. 2. When it finally came out, the collective sigh of relief was almost audible as it confirmed a minor miracle: that Australia was the only industrialized country to have dodged the global recession.

In the final quarter of 2008, Australia’s economy narrowly contracted. Since then, however, the country has recorded two positive (if anemic) quarters of economic growth — 0.6 percent between April and June, following a 0.4 percent increase between January and March — thus avoiding the feared two consecutive quarters of negative economic growth that define a recession. Unemployment, though edging upwards, is a respectable 5.8 percent.

By contrast, the U.S. continues to languish in negative growth territory for the fourth consecutive quarter. Unemployment is 9.7 percent with hundreds of thousands of jobs still hemorrhaging each month. Why has Australia proved so resilient? Part of the story, say experts, is its status as the “lucky country” — a function of its sunny climate, geographic detachment from the world’s troublespots and, most of all, its abundant natural resources. Over the past decade, Chinese demand for Australian commodities — particularly coal and iron ore — has helped bring unprecedented bounties to local coffers.

Yet even since the global recession, China has continued to treat Australia as its quarry. Its strategy involves the import of raw materials, taking advantage of low commodity prices, for an ambitious construction program of roads, railways, ports and new housing.

As Tony Morriss, senior strategist for ANZ Bank, told GlobalPost: “China being a Communist country has flooded their economy with stimulus and it’s been very effective. The demand for our raw materials has had an immediate effect.”

In the first quarter of 2009, China bought a record quantity of Australian iron ore. This caused Australia’s overall export volume to rise even though demand from Australia’s other trading partners collapsed. Australia’s luck was its strength in commodities — this gave it an advantage over manufacturing economies Germany and Japan which suffered craters in demand for their cars and electrical goods.

According to Morriss: “Because of our interrelationship, China and Australia have come out of this global financial crisis better than anyone else.”

Yet Australia’s resilience is as much a product of good management as good luck. Its banks are subject to much tighter prudential supervision and transparency requirements than their U.S. counterparts. Of the 11 international banks with an AA credit rating, four of them are Australian. And by and large, Australian banks avoided trading toxic subprime mortgage securities — a dangerous game that crippled overseas balance sheets.