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.
TEXT SIZE - +
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

Multimedia Anti-Keystone XL Protests Continue

Demonstrators are worried about pipeline's effect on climate change, their traditional way of life, health and safety More

Thailand's Political Power Struggle Continues

Court gave Prime Minister Yingluck Shinawatra until May 2 to prepare her defense over abuse of power charges but uncertainty remains over election timing More

Malaysia Plane Search Tests Limits of Ocean Mapping Technology

Expert tells VOA existing equipment’s maximum operating depth is around 6 kilometers as operation continues on ocean bed for any trace of MH370 More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Pet Kangaroo Helps Spread Environmental Messagei
X
Penelope Poulou
April 22, 2014 5:53 PM
Children’s author Julia Heckathorn travels the world to learn about different ecosystems and endangered animals. She pours her knowledge into children’s books, hoping the next generation will right the environmental wrongs of our times. As in many children's books, the main character in Heckathorn's stories is an animal. Unlike those other characters, though, this one is real - a kangaroo, that lives in the author’s backyard. VOA’s Penelope Poulou has more.
Video

Video Pet Kangaroo Helps Spread Environmental Message

Children’s author Julia Heckathorn travels the world to learn about different ecosystems and endangered animals. She pours her knowledge into children’s books, hoping the next generation will right the environmental wrongs of our times. As in many children's books, the main character in Heckathorn's stories is an animal. Unlike those other characters, though, this one is real - a kangaroo, that lives in the author’s backyard. VOA’s Penelope Poulou has more.
Video

Video Pro-Russian Separatists Plan 'Federalization Referendum' in Eastern Ukraine

Pro-Russian separatists in eastern Ukraine say they plan to move forward next month with a referendum vote for greater autonomy, despite the Geneva agreement reached with Russia, the U.S. and Ukraine to end the political conflict. VOA's Brian Padden reports from the city of Donetsk in Eastern Ukraine.
Video

Video Pope Francis Hopes Dual Canonizations Will Reconcile Church

On April 27, two popes - John the XXIII and John Paul II - will be made saints in a ceremony at St. Peter’s Square. VOA religion correspondent Jerome Socolovsky says the dual canonization is part of the current pope’s program to reconcile liberals and conservatives in the Roman Catholic Church.
Video

Video In Capturing Nature's Majesty, Film Makes Case for Its Survival

French filmmaker Luc Jacquet won worldwide acclaim for his 2005 Academy Award-winning documentary "March of the Penguins". Now Jacquet is back with a new film that takes movie-goers deep into the heart of a tropical rainforest - not only to celebrate its grandeur, but to make the case for its survival. VOA's Rosanne Skirble reports.
Video

Video Boston Marathon Bittersweet for Many Runners

Monday's running of the Boston Marathon was bittersweet for many of the 36,000 participants as they finished the run that was interrupted by a double bombing last year. Many gathered along the route paid respect to the four people killed as a result of two bombings near the finish line. VOA's Carolyn Presutti returned to Boston this year to follow two runners, forever changed because of the crimes.
Video

Video International Students Learn Film Production in World's Movie Capital

Hollywood - which is part of Los Angeles - is the movie capital of the world, and many aspiring filmmakers go there in hopes of breaking into the movie business. Mike O'Sullivan reports that regional universities are also a magnet for students who hope to become producers or directors.
Video

Video Pacific Rim Trade Deal Proves Elusive

With the U.S.-led war in Iraq ended and American military involvement in Afghanistan winding down, President Barack Obama has sought to pivot the country's foreign policy focus towards Asia. One aspect of that pivot is the negotiation of a free-trade agreement among 12 Pacific Rim nations. But as Obama leaves this week on a trip to four Asian countries he has found it very difficult to complete the trade pact. VOA's Ken Bredemeier has more from Washington.
Video

Video Autistic Adults Face Housing, Job Challenges

Many parents of children with disabilities fear for the future of their adult child. It can be difficult to find services to help adults with disabilities - physical, mental or emotional - find work or live on their own. The mother of an autistic boy set up a foundation to advocate for the estimated 1.2 million American adults with autism, a developmental disorder that causes communication difficulties and often social difficulties. VOA's Faiza Elmasry reports.
AppleAndroid

World Currencies

EUR
USD
0.7217
JPY
USD
102.17
GBP
USD
0.5949
CAD
USD
1.1009
INR
USD
60.326

Rates may not be current.