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

Multimedia Obama Defends Immigration Action

Obama says with his executive action on immigration, enforcement resources will be focused on 'felons, not families; criminals, not children' More

US-Led Airstrikes in Syria Kill Over 900: Monitoring Group

British-based Syrian Observatory for Human Rights says the toll includes more than 50 civilians, five of them women and eight of them children More

Report: Obama Broadens US Combat Role in Afghanistan

The New York Times says resident Barack Obama has signed a classified order extending the role of US troops in Afghanistan for another year More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
New Skateboard Defies Gravityi
X
November 21, 2014 5:07 AM
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 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.
Video

Video Tensions Build on Korean Peninsula Amid Military Drills

It has been another tense week on the Korean peninsula as Pyongyang threatened to again test nuclear weapons while the U.S. and South Korean forces held joint military exercises in a show of force. VOA’s Brian Padden reports from the Kunsan Air Base in South Korea.
Video

Video Mama Sarah Obama Honored at UN Women’s Entrepreneurship Day

President Barack Obama's step-grandmother is in the United States to raise money to build a $12 million school and hospital center in Kogelo, Kenya, the birthplace of the president's father, Barack Obama, Sr. She was honored for her decades of work to aid poor Kenyans at a Women's Entrepreneurship Day at the United Nations.
Video

Video Gay Evangelicals Argue That Bible Does Not Condemn Homosexuality

More than 30 U.S. states now recognize same-sex marriages, and an increasing number of mainline American churches are blessing them. But evangelical church members- which account for around 30 percent of the U.S. adult population - believe the Bible unequivocally condemns homosexuality. VOA's Jerome Socolovsky reports that gay, lesbian, bisexual and transgender evangelicals are coming out. Backed by a prominent evangelical scholar, they argue that the traditional reading of the bible is wrong.
Video

Video Ebola Economic Toll Stirs W. Africa Food Security Concerns

The World Bank said Wednesday that it expects the economic impact of the Ebola outbreak on the sub-Saharan economy to cost somewhere betweenf $3 billion to $4 billion - well below a previously-outlined worst-case scenario of $32 billion. Some economists, however, paint a gloomier picture - warning that the disruption to regional markets and trading is considerable. Henry Ridgwell reports from London.
Video

Video Mexico Protests Escalate Over Disappearances

Protests in Mexico over 43 students missing since September continue to escalate, reflecting growing anger among Mexicans about a political system they view as corrupt, and increasingly tainted by the drug trade. Mounting outrage over the disappearances is now focused on the government of President Enrique Pena Nieto, accused of not doing enough to end insecurity in the country. More from VOA's Victoria Macchi.
Video

Video US Senate Votes Down Controversial Oil Pipeline - For Now

The U.S. Senate has rejected construction of a controversial pipeline to transport Canadian oil to American refineries. The $5 billion project still could be approved next year, but it faces a possible veto by President Barack Obama. As VOA’s Michael Bowman reports, the pipeline has exposed deep divisions in Congress about America’s energy future.
Video

Video Can Minsk Cease-fire Agreement Hold?

Growing tensions between government troops and separatists in eastern Ukraine further threaten a cease-fire agreement reached two months ago in the Belarusian capital of Minsk. Critics of U.S. policy in Ukraine say it is time the Obama administration gives up on that much-violated cease-fire and moves toward a new deal with Russia. VOA's Scott Stearns has more.
Video

Video Chaos, Abuse Defy Solution in Libya

The political and security crisis in Libya is deepening, with competing governments and, according to Amnesty International, widespread human rights violations committed with impunity. VOA’s Al Pessin reports from London.
Video

Video US Hosts Record 866,000 Foreign Students

Close to 900,000 international students are studying at American universities and colleges, more than ever before. About half of them come from Asia, mostly China. The United States hosts more foreign students than any other country in the world, and its foreign student population is steadily growing. Zlatica Hoke reports.
Video

Video Ferguson Church Grapples with Race Relations

Many white residents of Ferguson, Missouri, say they chose to live there because of the American Midwest community's diversity. So, they were shocked when a white police officer killed an unarmed black teenager in August – and shaken by the resulting protests and violence. Some local churches are leading conversations on how to go forward. VOA’s Ayesha Tanzeem reports.

All About America

AppleAndroid

World Currencies

EUR
USD
0.8050
JPY
USD
117.90
GBP
USD
0.6376
CAD
USD
1.1259
INR
USD
61.655

Rates may not be current.