By: Dr. Mike Campbell

Australia was the only major economy not to fall into recession during the worst of the global financial crisis. It was also one of the first economies to restore interest levels on central bank rates to anything approaching normality; all of the central banks dropped interest rates to historically low values in order to spur recovery during the crisis and a good many remain at, or near these levels now.

Eastern Australia was hit by severe flooding which caused damage to property, infrastructure and mining interests earlier in the year. The flooding was responsible for a reduction of economic growth in the first quarter of the year. The Australian Bureau of Statistics revealed that the economy grew by 2.5% in the third quarter in comparison with the comparable period in 2010. Expansion in the mining and building sectors is credited with driving growth. The Q3 growth came in at 1% which is approximately five times the rate seen in Europe.

The Australian Reserve Bank (ARB) has dropped interest rates twice in consecutive months with the rate dropping from 4.75% to 4.25%. The aim of the reduction was to stimulate domestic demand; a luxury many central banks do not have because rates are at record lows. The ARB increased interest rates as the economy returned to growth to keep inflation in check; it currently stands at 3.5% which is above its target band of 2 to 3 %.

The Australian Dollar has risen on the economic news. Surprisingly, it has only appreciated by 2.7% against the Euro over the course of the last twelve months; it stood at EUR:AUD 1.3094 yesterday when the ECB published its rates.