CASE STUDY 3.1Cheer up: after the mining boom, Australia is still doing OK The latest of cial economic gures showed a ‘spending spree’ had helped economic growth accelerate to stronger-than-expected 3 per cent. And rather than plunging towards US50¢ our dollar has climbed back over US75¢ for the rst time since the middle of 2015. The fortunes of Australia’s most important export commodity, iron ore, are also looking up.

So what are we to make of the mixed economic messages so far this year?

ANZ’s head of Australian economics, Felicity Emmett, says the gloomy start to the year was driven by unfounded fears about the economic outlook.

That sentiment was backed by two of Australia’s top economic of cials who gave thoughtful speeches about the state of the economy this week.

Philip Lowe, the deputy governor of the Reserve Bank, was upbeat about Australia’s economic performance since the end of the mining boom. Dr Lowe said the economy has proved far more resilient than many expected.

‘Mining investment has also declined by almost 40 per cent, which is the equivalent of nearly 3 per cent of GDP. Yet over these two years, our economy has continued to expand at a reasonable pace, with growth over 2015 having been a bit stronger than was earlier expected and not too different from the long-term average,’ he said.

In a separate speech this week the Deputy Secretary of the Federal Treasury, Nigel Ray, said the economy should continue to perform well.

‘Slower global growth has been accompanied by a number of trends that are observable across the global economy: slower growth in trade; weak business investment; slower productivity growth; slower population growth in advanced economies; low in ation; and lower in ation expectations,’ he said.

While offshore hazards have intensi ed, Mr Ray said it was domestic factors that would be the key to Australia’s economic performance over the next two years, especially household spending.

Figure 3.5 The mining industry is important to the Australian economy

‘We need consumption (customer spending) growth to continue to grow strongly – we need the savings ratio to come down to achieve that – and we need ... Australian businesses to invest,’ he said.

Dr Lowe and Mr Ray also drew attention to the lingering decline in Australia’s national income. In past decades economic growth and national income have been very closely correlated but since the mining boom the two have diverged.

As a result the key measure of the economy – gross domestic product – has continued to grow.

QUESITONS1  What does the article state about the rate of economic growth in

Australia?

2  Describe the domestic factors that may have contributed to economic growth in Australia.