Of the major, democratic economies, undoubtedly Australia’s passage through the stormy seas of the global financial crisis has been the smoothest. Of course, that is not to say that Australians have had it easy in economic terms, nor is it to downplay major flooding problems which hit the nation last year. However, Australia is rich in raw materials and despite the global down turn; Australia’s export markets have continued to need Australian produce.
Australia was the first major economy which increased its central bank interest rates in a move to control inflationary pressures within the economy – all of the major central banks reduced interest rates to historically low levels in the worst of the crisis in a bid to stimulate business by boosting the supply of cheap money into their economies. The USA, Eurozone, Japan and the UK interest rates remain at, or near, these historic low levels, but in Australia the interest rate was at 3.75% until Tuesday.
The Reserve Bank of Australia’s view is that economic growth in the nation was slowing; largely as a result of declining demand around the globe and in particular, softening of demand in China. Unlike its peers, the Reserve has the luxury of being able to stimulate the economy by cutting interest rates. The Reserve cut its key interest rate by 0.25% to 3.5%; the second such reduction in as many months. In the view of the Bank, inflationary risk is currently well under control.
In an unrelated development, data for the performance of the Australian economy was stronger than analysts had predicted. Q1 2012 returned a growth figure of 1.3% whereas analysts had anticipated much more modest growth of around 0.5% (however, the growth attained compares poorly with the comparable figure of 4.3% from the same quarter last year).