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Difficult times in the Antipodes
Australia’s mining boom kept the country insulated from the worst of the post-crisis world. Fuelled by seemingly insatiable Chinese demand, times were good for those working in the raw materials sector.
It seemed that Australia could do no wrong. It was well-placed geographically to exploit the booming economies of east Asia, while its vast mineral reserves meant that trade with China boomed. However, all good things come to an end. Chinese growth is slowing down once again, and we are not likely to see a repetition of the massive infrastructure programme that kept China and the world economy afloat in 2008/9 when the west suffered its greatest financial crisis since the 1930s.
This leaves Australia in an awkward position. Societe Generale’s perma-bear Albert Edwards has said that the Commonwealth’s economy is ‘a leveraged time bomb waiting to blow’, as a credit bubble stoked by Chinese demand explodes. This might be over-egging the pudding somewhat, but the future is much less certain for Canberra now than at any time in the past three years.
There are ways out for Australia; it has an educated population and is the beneficiary of a dynamic workforce. However, the politicians will need to lead the way and resist the urge to try and control events. Less government, not more, is the answer.
Sunlit uplands for Britain?
Meanwhile, back in the mother country, there is reason for cautious optimism. The IMF has raised its GDP growth estimate for the UK from 0.7% to 0.9% for 2013, with the 2014 outlook unchanged at 1.5%.
In addition, the National Institute of Economic and Social Research recently said that it thinks second-quarter growth was 0.6%, much stronger than in the first three months of the year. Mark Carney’s arrival at the Bank of England has not dramatically changed the policy at Threadneedle Street, but in the months to come we will perhaps see a more nuanced approach to stimulus than has prevailed hitherto.
The government’s deficit reduction battle goes on, and there is much to do, but private sector hiring is strong and getting stronger, easily helping to cancel-out job losses in the public sector. The underlying resilience of the British economy is showing itself once again, and more home building will have positive knock-on effects.
Sterling might remain under pressure, but bond markets still have confidence in the government, and it seems as if, for the first time in five years, a return to real growth may be on the cards.
A long game
Just as an Ashes series is not usually won or lost in one innings, the battle for economic success depends on more than just the occasional good GDP reading. Still, for once, both the UK economy and the England cricket team appear to be in some kind of ascendance over their Australian cousins.