Talk about tempting fate. In late August, Australia’s Treasurer Joe Hockey predicted that the country would notch up more than 26 years of uninterrupted growth, beating the modern-era record set by the Dutch in 1982-2006. Australia’s economy has not suffered two successive quarters of falling GDP, the technical definition of a recession, for 24 years. But just a few days after Hockey spoke, it turned out that Australia’s economy had grown by just 0.2% in April, May and June, after a rise of 0.9% in the first quarter – and the outlook is far from encouraging.
The commodity prices slump has dented the mining sector, which comprises 10% of GDP. Eight of the country’s most important exports are raw materials, with the price of iron ore, Australia’s top export, now at a six-year low. Meanwhile, overall investment and growth is weakening.
Consumers have kept spending in recent years, but their debts are at record levels, and unemployment has risen to 6.3%. Housing is hugely overpriced and vulnerable to a crash, just as banks are cracking down on property lending. With analysts now expecting lower Australian interest rates, the Australian dollar may fall even further. Deutsche Bank reckons it could fall from around 69 US cents today to below 60.