Australia-the lucky economy
In a article last year in the Australian misesian web publication Brookes News, I pointed out how the Australian economic boom was driven by two factors, neither of which were likely to be sustainable: rising commodity prices (Unlike most rich countries Australia is a large net exporter of commodities and thus benefits from it) and a housing bubble.
I also predicted that just how bad the overall economy will come out from this depended on whether or not the two factors would end simultaneously or not. If they did, then Australia would suffer a severe recession. If however, they deflated at separate occassions then Australia might escape this without a recession.
Well, we have now seen how the housing market have started to decline, but as commodity prices have risen sharply, Australia have continued to have higher growth then nearly all other rich countries except Hong Kong and Singapore. According to the latest GDP numbers, the volume measure of GDP rose 1.3% over the latest quarter and 2.6% over the latest year and the more relevant terms of trade adjusted measure Real net national disposable income rose 3.1% over the latest quarter and 4.3% over the latest year.
This despite the fact that residential construction have fallen 5% over the latest year. Because of the incredible Australian luck though, this have been more than compensated by the fact that the continued boom in China and other Asian countries have raised commodity prices so much that this have more than compensated for the weak housing sector.
Of course, this doesn't mean that Australia will necessarily escape without any future recession. Despite the weak housing sector, many imbalances including the large current account deficit and the negative household savings rate is still there and if these are not corrected before the economies of China and the rest of Asia cools significantly and in the process drags down commodity prices, then Australia might still suffer a sharp recession. But so far, Australia have been very lucky to see commodity prices rise while the housing bubble have been partially deflated.