Australia Is Running Below Trend

Australia and China have the largest trading partnership as China is making important investments in the mining companies in Australia. Recently, those investments reduced considerably, leading to a poorer industrial and manufacturing activity in Australia and a slowdown of growth in China, as it produces and exports less.

The Reserve Bank of Australia left its benchmark interest rate unchanged to 2.5% as expected, maintaining the sentiment of “below trend” economic evolution. Concerning the Australian dollar, RBA still considers there is room for further depreciation (after 15% fall since April). This phenomenon of depreciation is considered beneficial in sustaining the recovery of the economy. The Australian economy is still expected to run below expectations, as the mining investments decreased considerably, leading to an alarming situation of the unemployment rate. Currently, the economy is struggling to make the transition towards non-mining growth, transition that puts preassure on the economy. As last reported in August, the business confidence sentiment continued to fall, remaining extremely poor. The same dissapointing situation is found in the case of retails sales which dropped to 0.1% while the current account was reported at -9.4 billion, under expectations.

Australia’s partner, China, seems to be pointing towards a positive horizon, but still we can’t be sure if this is the right moment. Thus, the manufacturing index indicated 50.1 points, overcoming the last 3 months of contraction. On the other hand, exports are still negatively impacted mainly because of the weak demand from Europe and U.S.. The same negative scenario is applicable to the unemployment rate level which kept dropping for the fifth successive month.

As it concerns the partnership between those two countries, it seems that it started loosing its power. As China is slowing down and is expected to recover and become the most powerful economy by 2025, Australia is visible damaged and is currently tring to modify the pillars on which its economy is based. Both economies are expected to slow down but on the long term they are expected to fully recover and become important parts of the global economy.