News / Economy

Australia's Abbott Set to Inherit Economy Others Would Envy

Opposition leader Tony Abbott (R) listens to Australian Prime Minister Kevin Rudd during the People's Forum in Sydney, Aug. 28, 2013.
Opposition leader Tony Abbott (R) listens to Australian Prime Minister Kevin Rudd during the People's Forum in Sydney, Aug. 28, 2013.
Reuters
Australia's presumptive prime minister, Tony Abbott, is set to  inherit a slowing economy, rising unemployment and a budget in the red. Yet look out to a three-year election horizon, and the view is a lot better.
 
Abbott's conservative Liberal-National coalition appears to be a shoe-in at elections this weekend, ending six years of Labor rule, and all the talk has been of the challenges he faces.
 
Chief among those are worries about a substandard economy and the pressure it's putting on public coffers - fears which have in large part been fanned by Abbott's coalition while in opposition. Indeed, the last recession was more than two decades ago and government debt is relatively low and manageable.
 
And any economic pain is likely to be concentrated in the near term, where blame can be conveniently laid at the feet of the former government.
 
It also helps that the starting point is not as bad as many feared. Government figures out this week showed the economy grew by 0.6 percent in the June quarter and a steady 2.6 percent for the year, defying speculation of a much deeper slowdown.
 
That is short of the 3.25 to 3.5 percent pace that Australians have come to think of as “normal”, but the economy is still consistently faster than any other developed nation.
 
Most economists expect growth to stay around 2.5 percent for a few more quarters, but further out things are brighter.
 
For instance, Reuters' latest poll of global banks found they expected economic growth to quicken to 3.1 percent over next year.
 
The Reserve Bank of Australia (RBA) is confident growth will accelerate to an above-average pace by 2015 -- its forecasts even stretch as high as 4.25 percent.
 
With another election not due until 2016, such an outcome would put Abbott in the driving seat to win a second term.
 
Fortunate timing
 
Developments offshore should also augur well for Abbott, with a marked improvement in economic news from the rich world in the past month or so.
 
The United States has gained enough traction that the Federal Reserve can consider reining back on stimulus, while Europe has emerged from recession.
 
Japan has boasted its best growth in years, and fears of a hard landing for China have faded in the face of better data on manufacturing and trade.
 
The latter is particularly good news for Australia as the Asian giant takes fully a third of its exports and is by far the biggest consumer of its iron ore, a A$60 billion-a-year boon to its trade accounts.
 
“Finally, all the evidence now points to a renaissance of growth in the advanced economies,” said Scott Haslem, an economist at UBS.
 
He noted that while instability in some emerging markets, such as India and Brazil, had garnered a lot of headlines, those countries accounted for only 12 to 13 percent of global output.
 
In comparison, the economies that were stabilizing, which includes China, were four times larger at 55 percent of output.
 
“This suggests greater upside risks, than downside risks, to global growth from here,” Haslem said.

Another timely blessing for Abbott has been the decline in the Australian dollar. For almost all of the last three years of Labor government it had been punishingly high, hollowing out manufacturing and crimping export earnings.
 
Since most of Australia's resource exports are priced in U.S. dollars, a high local currency lessens returns to miners, and so profits and tax receipts.
 
Fortunately for Abbott, then, that the currency has fallen by 14 percent since April, delivering a major windfall to miners and the next government's bottom line.
 
The RBA has made much of research that implies a 10 percent decline in the currency will stimulate economic growth by between 0.5 and one percentage point over two years.
 
“The Aussie is once again playing its traditional role as an income buffer,” said Michael Blythe, chief economist at Commonwealth Bank of Australia.
 
“The main beneficiaries of this income buffering should be corporate profits and government tax revenues related to that profit story.”
 
No austerity please, we're Australian
 
Having spent the past three years excoriating the Labor government for running deficits and accusing it of taking debt to crisis levels, Abbott has since abandoned all pretense of trying to get into the black in his first term of office.
 
Net government debt is expected to peak at 13 percent of GDP in the year ending June 2015, and the budget deficit for the current fiscal year is forecast at $30 billion, equal to 1.9 percent of gross domestic product.
 
Abbott's earlier stance on the deficit had raised the prospect of a dose of European-style austerity, which is now widely seen as having needlessly deepened the recession in Europe and actually only added to government debt problems.
 
Such was the threat that it moved U.S. Nobel Prize-winning economist Joseph Stiglitz to write a warning piece for the Sydney Morning Herald newspaper this week.
 
“The political spotlight has fallen on the perceived problem of government debt, with alarming proposals to bring austerity 'down under',” Stiglitz wrote. “Proposals for substantial budget cuts seem particularly misplaced at this time given that Australia's economy is confronting new global challenges.”
 
Yet he needn't have worried, because a return to budget surpluses now sounds more of an aspiration than a target.
 
Instead, Abbott conjured up a 10-year timetable to reach a “believable surplus”, a distant goal that would also require his party to win three elections in a row, and told ABC television he was aiming for relatively modest savings.
 
“I don't think anyone is going to think at the end of this week, 'My God, there is this massive fiscal squeeze coming.' If anything, what they will think is there has been a massive scare campaign,” Abbott reassured viewers.

You May Like

Photogallery Americans Celebrate Thanksgiving With Feasts, Festivities

Holiday traditions include turkey dinners, 'turkey trots,' American-style football and New York parade with giant balloons More

Video For Obama, Ferguson Violence is a Personal Issue

With two years left in term, analysts say, president has less to lose by taking conversation on race further More

Video Italian Espresso Expands Into Space

When Italian astronaut Samantha Cristoforetti headed for the ISS, her countrymen worried how she would survive six months drinking only instant coffee More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
South Africa Sees Male Circumcision as Way to Reduce HIV Infectionsi
X
November 28, 2014 3:31 PM
South Africa remains plagued by AIDS despite massive government and NGO efforts on prevention and life-sustaining Anti-Retro-Viral programs. But the country has opened up another front to reduce new HIV infections: promoting circumcision. Emilie Iob reports for VOA News from a pioneering circumcision center in Orange Farm, Johannesburg.
Video

Video South Africa Sees Male Circumcision as Way to Reduce HIV Infections

South Africa remains plagued by AIDS despite massive government and NGO efforts on prevention and life-sustaining Anti-Retro-Viral programs. But the country has opened up another front to reduce new HIV infections: promoting circumcision. Emilie Iob reports for VOA News from a pioneering circumcision center in Orange Farm, Johannesburg.
Video

Video To Make A Living, Nairobi Street Vendors Face Legal Hurdles, Physical Violence

The Nairobi City Council has been accused of brutality in dealing with hawkers in the Central Business District - in order to stop them from illegally selling their wares on the streets. Lenny Ruvaga has more for VOA News from the Kenyan capital.
Video

Video For Obama, Ferguson Violence is a Personal Issue

Throughout the crisis in Ferguson, Missouri, President Barack Obama has urged calm, restraint and respect for the rule of law. But the events in Ferguson have prompted him to call — more openly than he has before — for profound changes to end the racism and distrust that he believes still exists between whites and blacks in the United States. VOA White House correspondent Luis Ramirez reports.
Video

Video Online Magazine Gets Kids Discussing Big Questions

Teen culture in America is often criticized for being superficial. But an online magazine has been encouraging some teenagers to explore deeper issues, and rewarding their efforts. VOA religion reporter Jerome Socolovsky went to this year’s Kidspirit awards ceremony in New York.
Video

Video US Community Kicks Off Thanksgiving With Parade

Thursday is Thanksgiving in the United States, a holiday whose roots go back to the country's earliest days as a British colony. One way Americans celebrate the occasion is with parades. Anush Avetisyan takes us to one such event on the day before Thanksgiving near Washington, where a community's diversity is on display. Joy Wagner narrates
Video

Video Aung San Suu Kyi: Myanmar Opposition to Keep Pushing for Constitutional Change

Myanmar opposition leader Aung San Suu Kyi says she and her supporters will continue pushing to amend a constitutional clause that bars her from running for president next year. VOA's Than Lwin Htun reports from the capital Naypyitaw in this report narrated by Colin Lovett.
Video

Video Mali Attempts to Shut Down Ebola Transmission Chain

Senegal and Nigeria were able to stop small Ebola outbreaks by closely monitoring those who had contact with the sick person and quickly isolating anyone with symptoms. Mali is now scrambling to do the same. VOA’s Anne Look reports from Mali on what the country is doing to shut down the chain of transmission.
Video

Video Ukraine Marks Anniversary of Deadly 1930s Famine

During a commemoration for millions who died of starvation in Ukraine in the early 1930s, President Petro Poroshenko lashed out at Soviet-era totalitarianism for causing the deaths and accused today’s Russian-backed rebels in the east of using similar tactics. VOA’s Daniel Shearf reports from Kyiv.
Video

Video Hong Kong Protests at a Crossroads

New public opinion polls in Hong Kong indicate declining support for pro-democracy demonstrations after weeks of street protests. VOA’s Bill Ide in Guangzhou and Pros Laput in Hong Kong spoke with protesters and observers about whether demonstrators have been too aggressive in pushing for change.
Video

Video US Immigration Relief Imminent for Mixed-Status Families

Tens of thousands of undocumented immigrants in the Washington, D.C., area may benefit from a controversial presidential order announced this week. It's not a path to citizenship, as some activists hoped. But it will allow more immigrants who arrived as children or who have citizen children, to avoid deportation and work legally. VOA's Victoria Macchi talks with one young man who benefited from an earlier presidential order, and whose parents may now benefit after years of living in fear.
Video

Video New Skateboard Defies Gravity

A futuristic dream only a couple of decades ago, the hoverboard – a skateboard that floats above the ground - has finally been made possible. While still not ready for mass production, it promises to become a cool mode of transport... at least over some surfaces. VOA’s George Putic reports.
Video

Video Falling Gas Prices Impact US Oil Extraction

With the price of oil now less than $80 a barrel, motorists throughout the United States are benefiting from gas prices below $3 a gallon. But as VOA’s Kane Farabaugh reports, the decreasing price of petroleum has a downside for the hydraulic fracturing industry in the United States.

All About America

AppleAndroid

World Currencies

EUR
USD
0.8010
JPY
USD
118.31
GBP
USD
0.6371
CAD
USD
1.1397
INR
USD
62.122

Rates may not be current.