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http://www.abc.net.au/news/stories/2009/09/02/2674899.htm?section=australia'Wonder from down under' economy defies gloomBy Eonomics correspondent Stephen Long for PM
Economists are calling Australia the "wonder from down under" as the country enters its 19th year without a technical recession.
The latest GDP estimates say the Australian economy expanded by 0.6 per cent in the second quarter of the year - a growth which continues to defy expectations and gravity.
The surprise economic expansion, in a time when risks remain on the world stage and when stock markets still have the jitters, has economists lumping praise on the Government.
The eternal optimist CommSec's Craig James is feeling vindicated.
"Australia certainly can claim to be the wonder from down under," he said.
"Over the past eight years, there's only been one quarter, one three-month period, where the economy has gone backwards.
"Our record economic expansion has just completed 18 years. We've now moved into our 19th year.
"When you consider that we've just gone through the global financial crisis, this is a remarkable performance."
Government stimulus appears to have played a big role in maintaining growth, with Treasurer Wayne Swan today claiming credit for the figures, and rightly so, economists say.
"I think that the Government can rightly claim credit for the fact that the economy is continuing to grow," Mr James said.
The Royal Bank of Canada's Sue-Lin Ong agrees.
"I thought it was a pretty impressive set of GDP numbers today," she said.
"Growth coming in at 0.6 per cent, helped obviously by the fiscal stimulus from the Government, boosting private consumption and business investment."
AMP Capital economist Bob Cunneen was equally impressed.
"Australia's recorded a solid result but it largely reflects the benefit of the fiscal monetary stimulus," he said.
Household spending, aided by the cash handouts and rate cuts, added to growth. So did businesses spending money on plant and machinery, with the incentive of big tax breaks.
But for government expenditure, Treasury says the economy would have gone backwards in the three months to July and gone backwards by 1.3 per cent over the prior 12 months.
The Opposition says the economy's growth has been built on the solid foundations it left, but even it is willing to concede the Government has made a stimulating contribution.
Hockey criticism
Opposition treasury spokesman Joe Hockey says the growth is fantastic news.
"Of course if you throw enough money at a problem, some of it will stick and it's good," he said.
"It's good for Australia; It's fantastic for Australia that we are showing good economic growth today.
"We welcome the news, but now Mr Rudd has to pull back on the spending."
And Mr Hockey told the ABC1's Lateline program, the figures show the Government has spent too much.
"We've now got seven years of deficits for what appears to be five minutes of economic downturn with one negative quarter," he said.
"And that's a massive price to pay for a new school hall."
Mr Swan is also conceding the time has come to start scaling back.
Having kept us stimulated for a year, he is now pledging a gradual withdrawal of the fiscal ****.
But whether the economy can keep expanding without support is another question.
"I'd caution against this immediate withdrawal of stimulus in the start of next year. What we're seeing globally is a very severe downturn," Mr Cunneen said.
"The difficulty for Australian economy may face in the next three to six months is that that stimulus will start to fade, so there is still a risk that we may actually have just brought forward some of the spending and the economy is still going through a very weak patch and we could even record a negative quarterly result, so it's not smooth sailing from here."
But economist Sue-Lin Ong says Mr Swan's timing is right.
"It is
for a number of reasons. I think the fact that he's doing it suggests that the economy is proving more resilient than they thought. Probably an economy that doesn't quite need the amount of fiscal stimulus that was planned over the next 12 months," she said.
"In addition, we think that there is a change occurring in the RBA's rate cycle, that the next move is clearly upwards and the risk is that it happens sooner rather than later with the first hike possibly before Christmas.
"I think it would be very helpful for the Reserve Bank for fiscal policy to be moving in the same direction as monetary policy, so not quite so lax on the fiscal side.
"A bit of a tightening up, maybe flagging a tight budget next May. I think it would be very helpful for both policy leavers to be moving in the same direction in 2010."
She says to argue there has been too much stimulus is possibly an unfair comment.
"When this stimulus was designed it was at the time where the global recession was extremely deep and well synchronised and the fallout effects were potentially quite substantial for Australia," she said.
"Clearly the Government, as well as the Reserve Bank, moved very quickly on the policy fronts and I think that it was at that juncture more than warranted, given the fairly bleak outlook for global growth and the potential impact on Australia."
