Monday, 19 August 2013

The cricket analogy

Fresh from another unsuccessful Ashes series against England the Australian team may be licking their wounds and economy watchers may feel salt is being rubbed into those aforementioned wounds by Larry Elliot of Britain's Guardian newspaper who sees a clear and comparable trend in failure on a big scale ahead for Australia:

It may prove to be a similar story with the economy. Australia was one of the few developed economies to emerge from the global recessionlargely unscathed. Growth has been good for a quarter of a century, public debt is low, the banking system proved resilient during thefinancial crisis and it is one of only a handful of countries that still retains a AAA credit rating.
Australia now bears all the hallmarks of a country where its industrial base has hollowed out. The decision by Ford Australia to close its manufacturing plants at Broadmeadows and Geelong is evidence of what economists call Dutch disease: a natural resource boom drives up the exchange rate and makes all other exports deeply uncompetitive....
...As the economist John Llewellyn has pointed out, household debt in Australia rose sharply in the 1990s and 2000s and now stands at 150% of GDP. Noting that the housing market may already be in bubble territory, he adds: "Depending on a strong pickup in housing as a means to sustain growth and rebalance the economy would therefore appear to be fraught with danger.....The Reserve Bank of Australia is now cutting interest rates and talking down the currency in an attempt to rebalance the economy. That is easier said than done when your economy amounts to a large hole in the ground ringed by some expensive property.(here)

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