Australia Set to Supplant Spain as 12th Largest Economy

GDP likely to outpace Spain in Q3; ‘lucky country’ plans return to budget surplus

A park in Sydney, Australia. A park in Sydney, Australia.

Opportunities Down Under seem to be proliferating at a rate that will help the “lucky country” beat out troubled Spain this quarter as the world’s twelfth largest economy, as reckoned by GDP. Certainly its budget seems paced to return to a surplus in fiscal 2012.

Bloomberg reported Wednesday that according to national statistics from both countries, Australia’s $1.379 trillion economy will probably outpace Spain’s $1.386 trillion GDP in Q3.

In January, the International Monetary Fund (IMF) projected that Australia would still lag Spain’s GDP by $3 billion by the end of the year, but the country looks set to beat that—particularly since Australia holds a top debt rating from all three major agencies. Spain, in contrast, holds the lowest investment-grade rating of Baa3 from Moody’s. One more downgrade and it would be considered junk.

“This is a nice microcosm of the structural shifts in the global economy away from the old developed core to the emerging and peripheral part of the global economy, in Asia particularly,” said Richard Yetsenga in the report. Yetsenga is head of global markets research at Australia & New Zealand Banking Group.

Other sharp contrasts can be seen in Spain’s unemployment rate—24.6%, the highest in the European Union and a record for the country since its government moved to a democracy in the late 1970s—compared with Australia’s, which has remained near 5% for 15 months in succession. Spain’s economy also contracted in Q2.

While Australia warns of headwinds hitting the prices of iron ore and coking coal, taking a toll on its terms of trade, it has nevertheless managed to weather numerous economic shocks that have weighed down much of the rest of the world.

According to Michael Blythe, chief economist in Sydney at the country’s biggest bank, Commonwealth Bank of Australia, falling export prices do indicate that some of the “insulation that has protected the economy is fraying.”

Still, Blythe said in the report, “Various global shocks have hit the Australian economy—the Asian financial crisis, the tech wreck, the global financial crisis to name a few. These events would normally tip the economy into recession. But we have bounced through each pothole and come out the other side in respectable shape courtesy of the stimulus from a rising terms of trade.”

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