Australia’s economy faces difficult ride

As Australia approaches a sharp fall- off in resources investment later this year, the question dominating the outlook for the mining- dependent economy is where growth will come from next.

The search for the next growth cycle became more urgent following the recent corporate earnings season, where dividend payments reportedly reached a record US$ 63.3 billion, cost- cutting was a key theme and companies remained cautious about investing.

“What we are seeing in reporting season in our view is rational for companies -- and that is to save,” Credit Suisse strategist Damien Boey told AFP.

“It’s not the ideal outcome for the economy and it could well also be another factor which entrenches the slowdown in Australia.” Slowdowns and recessions are a distant memory for Australians.

The country, boosted by its largest trading partner China’s hunger for resources, has enjoyed a mining investment boom which has helped it avoid recession for more than two decades.

But as that boom draws to a close and the economy transitions away from resources-led expansion, signs that non-resources sectors will fill the gap are mixed.

While the housing sector has flourished as interest rates remain at a record low of 2.5 per cent – with property prices in cities such as Sydney now among the most unaffordable in the world – spending has been weak in other areas.

The Australian government is determined to narrow the budget deficit by cutting welfare and spending, while consumers continue to favour paying down their debt to splashing out in shops.

At the same time, the local dollar remains strong against its US counterpart despite plunging commodity prices, hurting exportsoriented and import- competing businesses.

Quentin Grafton, the former head of Australia’s Bureau of Resources and Energy Economics, said the country faced a challenging time, exacerbated by concerns of property bubbles and over-investment in China. — AFP