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

    Hope Remains for Rio Olympic Games

    Facing a host of problems, Rio prepares for holding the games but experts say some risks, like Zika, may not be as grave as initially thought

    Diplomats Hope to Revive Cradle of Civilization After Defeat of IS

    Diplomats from around globe gather at US State Department, discuss how to rebuild minority communities shattered by Islamic State group

    Women Voters Look Past Gender in Assessing Clinton

    She's the first female presidential nominee, but party identification, other factors outweigh gender

    Featured Videos

    Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
    Uganda Unveils its First Solar-powered Busi
    X
    July 28, 2016 4:16 AM
    A solar-powered bus described by its Ugandan makers as the first in Africa has made its public debut. Kiira Motors' electric bus, Kayoola, displayed recently at a stadium in Uganda's capital. From Kampala, Maurice Magorane filed this report narrated by Salem Solomon.
    Video

    Video Uganda Unveils its First Solar-powered Bus

    A solar-powered bus described by its Ugandan makers as the first in Africa has made its public debut. Kiira Motors' electric bus, Kayoola, displayed recently at a stadium in Uganda's capital. From Kampala, Maurice Magorane filed this report narrated by Salem Solomon.
    Video

    Video Silicon Valley: More Than A Place, It's a Culture

    Silicon Valley is a technology powerhouse and a place that companies such as Google, Facebook and Apple call home. It is a region in northern California that stretches from San Francisco to San Jose. But, more than that, it's known for its startup culture. VOA's Elizabeth Lee went inside one company to find out what it's like to work in a startup.
    Video

    Video Immigrant Delegate Marvels at Democratic Process

    It’s been a bitter and divisive election season – but first time Indian-American delegate Dr. Shashi Gupta headed to the Democratic National Convention with a sense of hope. VOA’s Katherine Gypson followed this immigrant with the love of U.S. politics all the way to Philadelphia.
    Video

    Video Philadelphia Uses DNC Spotlight to Profile Historic Role in Founding of United States

    The slogan of the Democratic National Convention now underway in Philadelphia is “Let’s Make History Again” which recognizes the role the city played in the foundation of the United States in the 18th century. As VOA’s Kane Farabaugh reports, local institutions are opening their doors in an effort to capitalize on the convention spotlight to draw visitors, and to offer more than just a history lesson.
    Video

    Video A Life of Fighting Back: Hillary Clinton Shatters Glass Ceiling

    Hillary Clinton made history Thursday, overcoming personal and political setbacks to become the first woman to win the presidential nomination of a major U.S. political party. If she wins in November, she will go from “first lady” to U.S. Senator from New York, to Secretary of State, to “Madam President.” Polls show Clinton is both beloved and despised. White House Correspondent Cindy Saine takes a look at the life of the woman both supporters and detractors agree is a fighter for the ages.
    Video

    Video Dutch Entrepreneurs Turn Rainwater Into Beer

    June has been recorded as one of the wettest months in more than a century in many parts of Europe. To a group of entrepreneurs in Amsterdam the rain came as a blessing, as they used the extra water to brew beer. Serginho Roosblad has more to the story.
    Video

    Video First Time Delegate’s First Day Frustrations

    With thousands of people filling the streets of Philadelphia, Pennsylvania for the 2016 Democratic National Convention, VOA’s Kane Farabaugh narrowed in on one delegate as she made her first trip to a national party convention. It was a day that was anything but routine for this United States military veteran.
    Video

    Video Commerce Thrives on US-Mexico Border

    At the Democratic Convention in Philadelphia this week, the party’s presumptive presidential nominee, Hillary Clinton, is expected to attack proposals made by her opponent, Republican presidential nominee Donald Trump, to build a wall along the U.S.-Mexico border. Last Friday, President Barack Obama hosted his Mexican counterpart, President Enrique Peña Nieto, to underscore the good relations between the two countries. VOA’s Greg Flakus reports from Tucson.
    Video

    Video Film Helps Save Ethiopian Children Thought to be Cursed

    'Omo Child' looks at effort of African man to stop killings of ‘mingi’ children
    Video

    Video London’s Financial Crown at Risk as Rivals Eye Brexit Opportunities

    By most measures, London rivals New York as the only true global financial center. But Britain’s vote to leave the European Union – so-called ‘Brexit’ – means the city could lose its right to sell services tariff-free across the bloc, risking its position as Europe’s financial headquarters. Already some banks have said they may shift operations to the mainland. Henry Ridgwell reports from London.
    Video

    Video Recycling Lifeline for Lebanon’s Last Glassblowers

    In a small Lebanese coastal town, one family is preserving a craft that stretches back millennia. The art of glass blowing was developed by Phoenicians in the region, and the Khalifehs say they are the only ones keeping the skill alive in Lebanon. But despite teaming up with an eco-entrepreneur and receiving an unexpected boost from the country’s recent trash crisis the future remains uncertain. John Owens reports from Sarafand.
    Video

    Video Migrants Continue to Risk Lives Crossing US Border from Mexico

    In his speech Thursday before the Republican National Convention, the party’s presidential candidate, Donald Trump, reiterated his proposal to build a wall along the U.S.-Mexico border if elected. Polls show a large percentage of Americans support better control of the nation's southwestern border, but as VOA’s Greg Flakus reports from the border town of Nogales in the Mexican state of Sonora, the situation faced by people trying to cross the border is already daunting.

    Special Report

    Adrift The Invisible African Diaspora

    World Currencies

    EUR
    USD
    0.9017
    JPY
    USD
    104.72
    GBP
    USD
    0.7594
    CAD
    USD
    1.3160
    INR
    USD
    67.046

    Rates may not be current.