Aussie Economy: Weak Housing vs Strong Commodity Sector
In September last year, I followed it up with a post where I pointed out that it seemed like Australia once again earned its reputation as "the lucky country". The housing bubble had started to burst, but the economy continued to grow because the commodity price boom had continued.
Now that the Reserve Bank of Australia have released the numbers of the latest GDP report, this overall picture of strong commodity sector and weak housing sector is roughly unchanged. Despite the weak housing sector, terms of trade adjusted growth remains higher than in most other rich countries.
Dwelling investments (i.e. residential construction) have now fallen to 6.4% of GDP, down from a peak of over 7% of GDP in the first quarter of 2004. Meanwhile, business investments have risen from 14.9% to 16.5%. The proportion of this going to the commodity sector is not specified, but it seems likely that most -if not the entire- of the increase have gone to the commodity sector.
The current account deficit have during the same time fallen relative to GDP while the household savings rate is somewhat less negative. The imbalances of the Australian economy created by the housing bubble have thus lessened somewhat as the bubble have partially deflated, but they are still significant. For the Aussie economy to continue to escape the recession that normally follows a bubble as significant as the housing bubble of recent years, it will have to experience continued luck in the form of continued commodity price increases.