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Australia economy key focus of election campaign

The robust Australian economy, which dodged recession in 2009 and emerged strong from the global financial crisis, will be key in the 2010 election.

world Updated: Jul 16, 2010 12:54 IST

The robust Australian economy, which dodged recession in 2009 and emerged strong from the global financial crisis, will be key in the 2010 election.

The Labor government, led by new Prime Minister Julia Gillard, claims much of the credit for this performance, citing a fiscal stimulus and quick action on guaranteeing bank wholesale funding.

While these steps helped, analysts give just as much credit to a sound banking system, steep cuts in interest rates by the Reserve Bank of Australia and rapid population growth.

Still, the government is counting on the good health of the economy to secure a re-election, though further interest rate increases reversing the cuts could dampen sentiment in a nation with one of the highest levels of home ownership in the world.

Gillard is likely to call an election on Saturday for August 28, public broadcaster ABC reported on Friday, quoting sources from the ruling Labor party. Here are some key economic points:

* The economy grew a solid 2.7 per cent in the year to March, again better than most developed nations, and most forecasters expect an acceleration to around 3.25 per cent for all of 2010 and higher in 2011. This should be the 17th straight year of uninterrupted growth for Australia, a record few can beat.

* Having a job is what matters to most people and Australia scores highly here with 353,000 new jobs created in the past 12 months. Unemployment peaked at just 5.8 per cent last year, well below initial estimates, and has since dropped to a 17-month low of 5.1 per cent. That is almost half the levels in the euro zone and the United States and even below Japan.

* House prices recovered rapidly from the global financial crisis to be up 20 per cent in the year to March by the government's measure, while other industry measures put the gains at 12 to 14 pct. That, and a bounce in equities, has helped rebuild household assets. But while rising prices please those who own a home, it discourages those voters looking to buy for the first time.

* Neither have home buyers been helped by 150 basis points in rate hikes from the RBA and independent raises in mortgage rates by the big banks. These have added around A$3,600 a year to loan repayments on an average A$300,000 mortgage. The demand for home loans has tapered off in the past few months while approvals to build new homes have flagged after a strong run last year.

* Rising rates had put a crimp on consumer confidence in the last few months and retailers complain that even steep discounting is not attracting shoppers. Yet the latest survey of consumers found a much improved mood this month. New car sales were still a record for June and online shopping is booming, suggesting underlying resilience in consumption.

* The RBA hiked in part because of a boom in Australia's export earnings as Chinese and Indian demand sent prices for key resources such as iron ore and coal soaring. The country's trade balance has already swung to a large surplus and the central bank sees a golden decade ahead for Australia, with trade boosting business investment, profits, employment, wages and tax receipts.

* Business investment is being driven by the booming mining and LNG sectors which have a massive pipeline of projects, including the A$43 billion ($38 billion) Gorgon project. That is also leading to talk of a two-speed Australia with the resource-rich states of Western Australia and Queensland benefiting more than other states.

First Published: Jul 16, 2010 12:42 IST