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

US Investors Eye IPO for China's Alibaba

E-commerce giant handled 80 percent of China's online business last year, logging more Internet transactions than US-based Amazon.com and eBay combined More

Video Uneasy Calm Settles Over Israel, Gaza Strip

As cease-fire begins, Palestinians celebrate in streets; Israelis remain wary More

Video Chinese Doctors Use 3-D Spinal Implant

In treatment of a 12-year-old boy Chinese doctors used a 3-D printer and special software to create an exact replica of vertebra More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Chinese Doctors Use 3-D Spinal Implanti
X
August 27, 2014 4:53 PM
A Chinese boy suffering from a debilitating bone disease has become the first patient with a part of his spine created in a three-dimensional printer. Doctors say he will soon regain normal mobility. VOA’s George Putic reports.
Video

Video Chinese Doctors Use 3-D Spinal Implant

A Chinese boy suffering from a debilitating bone disease has become the first patient with a part of his spine created in a three-dimensional printer. Doctors say he will soon regain normal mobility. VOA’s George Putic reports.
Video

Video Uneasy Calm Settles Over Israel, Gaza Strip

Israel and the Gaza Strip have been calm since a cease-fire set in Tuesday evening, ending seven weeks of hostilities. Hamas, which controls Gaza, declared victory. Israelis were more wart. VOA’s Scott Bobb reports from Jerusalem.
Video

Video India’s Leprosy Battle Stymied by Continuing Stigma

Medical advancements in the treatment of leprosy have greatly diminished its impact around the world, largely eliminating the disease from most countries. India made great strides in combating leprosy, but still accounts for a majority of the world’s new cases each year, and the number of newly infected Indians is rising - more than 130,000 recorded last year. Doctors there say the problem has more to do with society than science. VOA News reports from Kolkata.
Video

Video Northern California Quake: No Way to Know When Next One Will Hit

A magnitude 6.0 earthquake rocked northern California’s Napa Valley on Sunday. Roads twisted and water mains burst. It was the wine country’s most severe quake in 15 years, and while hospitals treated many people, no one was killed. Arash Arabasadi has more from Washington on what the future may hold for those residents living on a fault line.
Video

Video Scientists Unlock Mystery of Bird Flocks

How can flocks of birds, schools of fish or herds of antelope suddenly change direction -- all the individuals adjusting their movement in concert, at seemingly the same time? British researchers now have some insights into this behavior, which has puzzled scientists for a long time. VOA's George Putic has more.
Video

Video Ukraine: Captured Troops Proof of Russian Role in Separatist Fight

Ukrainian officials say they have captured Russian soldiers on Ukrainian territory -- the latest accusation of Moscow's involvement in the conflict in eastern Ukraine. VOA's Gabe Joselow reports from the Ukrainian side of the battle, where soldiers are convinced of Russia's role.
Video

Video Rubber May Soon Come From Dandelions

Synthetic rubber has been around for more than a century, but quality tires for cars, trucks and aircraft still need up to 40 percent or more natural rubber content. As the source of natural rubber, the rubber tree, is prone to disease and can be affected by bad weather. So scientists are looking for replacements. And as VOA’s George Putic reports, they may have found one in a ubiquitous weed.
Video

Video Jewish Life in Argentina Reflected in Yiddish Tango

Jewish people from across Europe and Russia have been immigrating to Argentina for hundreds of years. They brought with them dance music that were eventually mixed with Argentine tango. The result is Yiddish tango -- a fusion of melodies and cultural experiences that is still evolving today. Elizabeth Lee reports from the Skirball Cultural Center in Los Angeles, where one band is bringing Yiddish tango to an American audience.

AppleAndroid

World Currencies

EUR
USD
0.7537
JPY
USD
103.79
GBP
USD
0.6032
CAD
USD
1.0957
INR
USD
60.522

Rates may not be current.