Saturday, October 27, 2012

Down Under Economy Is Going Down?

Interesting article about how the sharp slowdown in China's economy will have dire consequences for Australia's economy

China's boom has helped Australia, through its commodity exports to China, boom a lot faster than almost all other advanced economies, its per capita income is currently the highest in the world among countries with a population above 10 million, even as Australia has had population growth of 1.5 to 2% per year, the highest population growth rate among all advanced countries except Luxembourg and Israel.

But now as China's economy slows its demand for Australian commodities has started to fall. This factor is already apparent in Australia's trade statistics which showed a yearly drop in exports of  as much as 12% in August following a 3% yearly decline in July, causing its previous trade surplus to turn in to a deficit.

The labor market isn't doing as bad as exports so far because of rising domestic demand, yet employment growth has also dropped sharply, and at 0.5% it is well below the 1.5% rate of population growth. As a result the unemployment rate has increased the last year even as the labor force participation rate has dropped.