Australia's Economy Continues To Grow, With No Recession In Sight

The cheerful economy of the Lucky Country has come of age. Despite occasional setbacks at home and in the global economy, Australia has managed to grow for the last 21 years straight, with nary a recession in sight. In fact, its economy grew in 2012 at the fastest pace since 2007 on a rise in exports, according to data from the Australian Bureau of Statistics, and the Australian economy surpassed Spain in 2012 as the world’s twelfth largest—not bad for a country that’s slightly smaller in size than the contiguous U.S. but boasts only 22,262,501 people (the U.S. has over 314 million, and Spain a little over 47 million).

The Commonwealth of Australia, which only became a country in 1901—when its six original colonies federated—has capitalized on its vast natural resources to become a prosperous place. It has also managed to balance productivity, demand, and monetary policy to withstand a global economic downturn that has put much of the rest of the world in the shade for the past few years. The country weathered the global slowdown with a still-growing economy thanks to a stimulus package, put in place by the government under former Prime Minister Kevin Ruud, and low interest rates; during the period it recorded only a single quarter in which its economy shrank.

Fitch Ratings just affirmed the country’s AAA rating with a stable outlook at the end of March, citing numerous factors including the fact that “Australia has built up the capacity to absorb shocks due to a combination of low public debt, a free-floating exchange rate and liberal trade and labor markets, which allows the authorities to run strong countercyclical policies during downturns and the economy to adjust.”

Much of Australia’s prosperity is thanks to its vast array of natural resources. Mining is a large part of its economy; in addition to being a source for gold, silver, diamonds, opals, and many other minerals, Australia is the largest net exporter of coal in the world, all by itself accounting for 29% of global coal exports. It also boasts a large service sector and strong employment.

While there have been a few slowdowns in domestic spending recently—manufacturing and construction were down in the latest report—consumer confidence has risen, backed by a slight rise in household spending. While consumers did cut back on recreational spending, dining out, and hotels, they put the money instead into clothing, food, utilities, healthcare—and new vehicles.

Investors interested in such a bright picture in an otherwise often-gloomy worldview might have heard that the mining sector Down Under has slowed. While that’s true, there are still plenty of opportunities—in other sectors—to provide balm to a weary investor’s bank account—er, heart. And even mining isn’t completely cast in gloom.

A warning by the Australian central bank that the country’s mining services industry is in for a decline came on March 27; the Reserve Bank cited cutbacks in funds for investment and exploration in the sector, as well as a sharp decline in earnings, as the reason for its concern—not just for the sector, but overall, since mining plays such a large part in Australia’s economy.

However, only three days later, an investment of nearly $7 billion was announced that would boost mining tycoon Gina Rinehart’s Roy Hill iron ore project in the Pilbara region of the country’s Western Australia state and allow China’s MMG to proceed with its own zinc, silver, and lead mine in western Queensland. Korean company Samsung C&T is set to build the Roy Hill project, which includes an open cut mine, an ore processing plant, a railway line for transport of the processed ore, and port infrastructure at Port Hedland.

Korean, Japanese, and Chinese companies all own stakes in Rinehart’s mine, although she retains a 70% controlling interest. MMG expects up to $1 billion in funding for its mine from the China Development Bank; MMG’s largest shareholder is China Minmetals Corporation, a business owned by the Chinese government.