Chris Webber | June 21st 2012 | @GlobalMkts
I've recently come back from a few weeks visiting friends in Australia. It was my first time Down Under and I was struck by how prosperous it seemed. Of course, everyone knows that Australia's economy's been booming, so it shouldn't come as much of a surprise to see evidence of that success when visiting. Still, I decided to have a quick look at the stats and was surprised by just how well the Aussie economy seems to have been doing over the past decade. I thought I'd share some of the main points here on the blog.
The first indicators I looked at were nominal and purchasing power parity (PPP) measures of GDP per head (see figure 1). Apart from nicely illustrating the importance of using both these datasets when comparing country performance, what do the two charts tell us about Australia's economic performance over the past decade?
In the one where I've used nominal GDP per capita (the top chart) Australia's performance looks incredible. Based on these figures, in the space of just over ten years (2000-2011), the Aussies have jumped from the bottom to the top of a list of industrialised countries that includes the US, Japan, France, the UK and Germany.
That does seem impressive, but when we look at GDP per head at PPP (the bottom chart), we can see that Australia's rise has been considerably less meteoric. Using PPP data is useful because it allows us to adjust for differences in cost of living across countries and eliminate the impact of exchange rate fluctuations. Using this metric, Australia starts and finishes in second place and remains a long way behind the US throughout the period.
The PPP stats don't completely undermine the Australian good news story, however. It's not immediately obvious from the chart, but, along with Germany, Australia experienced the strongest growth in GDP per capita at PPP of the six economies I've looked at here. In both countries, GDP per capita at PPP rose by 34% over the decade, compared with 28% in France and just 25% in Japan.
Why has Australia been doing so well? One of the main reasons is that, while most other industrialised countries have been suffering the effects of recession, Australia has escaped pretty much unharmed. As figure 2 shows, in our little selection of industrialised economies, Australia was the only one to avoid recession altogether. Growth still hasn't returned to its pre-crisis levels, but it's been humming along very nicely when compared to the rest of our group.
As most people know, another big reason for Australia's success is that its exports have been booming. Figure 3 shows the growth in the value of good exports in each of our six countries between 2000 and 2011. Unsurprisingly, the Aussies have been doing fantastically well here, with Asia's demand for their natural resources (particularly iron ore) seeing the total value of their goods exports grow at nearly twice the speed of Germany's over this period.
Things are looking pretty rosy, but there are still some serious concerns. The most commonly cited source of gloom is that those working outside the resources sector can't keep up with rising housing and living costs. Meanwhile, some economists and politicians also worry that Australia might be suffering from a version of the famed 'Dutch disease', whereby a resource boom leads to a decline in the competitiveness of other sectors of the economy.
Notwithstanding these fears, it's not a bad time to be living in Australia, particularly if you happen to be working in the resources sector. Sun, sand, sea, decent wine and a whole lot of money.