Many nations would be glad to be posting quarterly growth figures of 0.6%, or 2.3% on an annualised basis, but Australia had been expected to return 0.7% (2.6% full year) growth in the third quarter, so analysts have been disappointed. The culprit for the weaker-than-expected growth seems to be flagging domestic demand.
As the world gradually edges towards recovery, demand for Australia’s raw materials has been subdued, reducing the exports contribution to the Q3 GDP figure. Key markets for Australia’s mineral exports such as China and India have suffered from slowing economies across the course of 2013, easing demand for Australian raw materials exports.
Unlike many developed economies, Australia is not operating a near-zero interest rate policy, nor is it engaged in “quantitative easing” measures to stimulate its economy. The Reserve Bank of Australia key interest rate stands at 2.75% with inflation running at 2.2%; well within the Bank’s target range of 2-3%. Consequently, Australia can use interest rate policy to stimulate growth; indeed, the Bank trimmed its key interest rate by 0.25% in August. In fact, Australian interest rates are currently at a record low level, but unlike the ECB, Bank of Japan, Federal Reserve and Bank of England, Australia’s policy makers still enjoy room for manoeuver if the economy looks to be in the doldrums.
Australia and South Korea have just announced a free-trade agreement which is intended to boost bilateral trade. Currently, trade between the two nations is worth $29 billion (2012). Speaking to the Australian Broadcasting Corporation, Australian PM Tony Abbot noted that benefits should start immediately and be long lasting: "Independent modelling shows the agreement would be worth A$5bn between 2015 and 2030 and boost the economy by around A$650m annually after 15 years."