Australia, Asia economies stronger than US

Updated September 2, 2010 12:46:26

Australians have been basking in one of the world's best performing developed economies for the past year - but the latest official figures show even the optimists were too cautious about the outlook.

Growth surged 1.2 per cent for the three months to June, or provisionally 3.3 per cent for the year. This is much better than forecasts. And along with data from China, Korea and India this week, Asia continues to lead the global rebound from recession. But the threat of a double dip recession still looms over the US and Europe.

Presenter: Karon Snowdon, finance correspondent
Speakers: Wayne Swan, Australian (caretaker) treasurer; Joshua Williamson, senior economist, Citigroup; Sue Lin Ong, senior economist, RBC Capital Markets

SNOWDON: On the political front potential stalemate in Canberra has shifted a fraction by the signing of an agreement by the Greens party with Julia Gillard's caretaker government.

But while the shape of the government in Australia might be in doubt two weeks after the election, not so the economy.

Treasurer, Wayne Swan.

SWAN: These are an outstanding set of figures. An outstanding set of figures that all Australians can be proud of. Strong growth and a strong outlook in a confident Australia. And I can say from my G20 involvement that finance ministers elsewhere and prime ministers elsewhere would kill for a set of outcomes such as these. They are very important for Australia because what they show is that the plan the government put in place when the global recession hit and the global financial crisis came along has worked.

SNOWDON: At 1.2 per cent, it's Australia's best quarter for three years, confirming the economy is running on its own steam and is less dependent now on the government's fiscal stimulus.

Senior economist at Citigroup, Joshua Williamson.

WILLIAMSON: This is a better figure than pretty much anybody was expecting and it's a fantastic result for the Australian economy.

SNOWDON: Mineral exports to Asia remain a big factor.

China's growth has slowed a little but it's not a sharp downturn - it's settled back to a more sustainable 10.3 per cent growth in the second quarter from the run away 12 per cent in the first.

Domestic demand in India has it set for a return to close to precrisis growth levels of more than 8 per cent.

Korea too - another big customer for Australian commodities - is showing a strong recovery with a forecast of almost 6 per cent growth this year - a massive turnaround from last year's 0.2 per cent.

Sue Lin Ong is the senior economist with RBC Capital Markets.

ONG: Australia is fortunate to be leveraged to the strongly growing Asian region. And export volumes put in a very good performance. We had a very strong 5.5 per cent increase in export volumes. So, Australia is very much benefiting from being part of this region and strength in the region and we think that is the story, not just for this quarter and next year, but really for decades to come.

SNOWDON: But a threatening cloud still looms over Europe and the US.

Certainly, demand for China's clothes and gadgets is likely to weaken in these markets.

In Australia's case there were surprisingly strong data for consumption and construction.

ONG: We actually think there's a reasonable amount of resilience and unexpected strength in the data. So, consumption in the quarter - it was up 1.6 per cent. That's a pretty big monthly gain.

SNOWDON: But if the fears of a double dip recession in the US prove correct Asia will feel the effects. Sue Lin Ong.

ONG: In particular, the US, where the data run in the last couple of weeks to months has proved very disappointing. The US does look like it's losing some momentum. Markets are fairly wary ahead of key numbers later this week. So, it is a concern and while Australia's trade exposure to the US is nowhere near as significant as it is to Asia, if the US is losing some momentum and there is a risk of a double dip, then Australia will feel some impact from that.

SNOWDON: There is a gloomy side to the strong recovery underway in Asia.

Very high housing prices led Singapore on Monday to join China in imposing tough restrictions on real estate speculation.

Authorities are increasingly concerned about a property bubble about to burst in these two countries, as well as Hong Kong.

In Australia, there are far fewer policy options to improve fast receding housing affordability.