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Analysis: Shut off from the world, Australia fosters red-hot growth at home

EconomyJun 28, 2021 03:26AM ET
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2/2 © Reuters. FILE PHOTO: People are seen walking in front of the Sydney Opera House and Sydney Harbour Bridge following the easing of restrictions implemented to curb the spread of the coronavirus disease (COVID-19) in Sydney, Australia, June 23, 2020. REUTERS/Loren 2/2

By Swati Pandey

SYDNEY (Reuters) - A year after the coronavirus pandemic pummelled Australia's economy, IT contractor Ashok Ravindran has a nice problem: deciding which of three job offers to accept.

His happy dilemma is a reflection of an economy that is now larger than its pre-pandemic level. Exports are booming, consumer and business confidence are high and employment has beaten all expectations, with job vacancy rates at a 12 1/2 year high.

The Sydney resident only quit his last job two weeks ago.

"The market is really hot right now. I tried a few companies just to test waters and received three offers," Ravindran told Reuters. "I got counter offers from each of them. That made it harder to say no as you don't want to burn your bridges."

Far from last year's dire predictions, Australia's unemployment rate has slid to a pre-pandemic level of 5.1%, home building approvals are at a record high and consumer spending is euphoric.

The A$2 trillion ($1.5 trillion) economy is now larger than before the once-in-a-century pandemic hit its shores. Sporting events are again a major spectacle and pubs overflow with patrons. In many states and territories, masks are an uncommon sight.

If anything, the very constraints that were expected to hurt demand, such as closed international borders and limited domestic mobility, have serendipitously channelled new sources of growth.

Instead of travelling to Bali or Bangkok, Australians are holidaying locally. Working from home requirements have prompted many to base themselves in new residences outside major cities, propping up demand in smaller towns. Physical distancing rules have spurred online retail sales while dining out has never been this popular.

"Australia is breaking records in what must be one of the fastest economic recoveries in modern history," said AMP (OTC:AMLTF) Capital Australian Equities Portfolio Manager Dermot Ryan.

"The economy is riding the wave of a triple boom in mining, housing and corporate profitability."

While the country is in the midst of a worsening trade war with the world’s largest trading nation, China, Australia's exports are miraculously booming, thanks to soaring prices of iron ore and newer markets in Asia and Middle East to sell to.

Economists expect this golden run to extend awhile.

Australia's swift economic recovery from its first recession in three decades in 2020 has been driven by its ability to largely re-open from coronavirus lockdowns earlier than expected and solid monetary and fiscal stimulus.

The combination has triggered a property bull run, freeing up a huge amount of capital that was prudently held back by banks in 2020 in case of a COVID-induced housing crash.

AMP's Ryan said both the mining and banking sectors have the potential to return over A$50 billion each to investors over the coming financial year.

The surge in home prices has sparked a building boom, sending shares of building products makers such as James Hardie (NYSE:JHX) and Brickworks to record highs. Shares of Australia's top mortgage lender Commonwealth Bank, are at all-time highs after ceremoniously surpassing A$100 on May 28.

In another sign of solid business recovery, CBA this month said its financing of light commercial vehicles is up a startling 187% since January over the past year while loans for equipment and machinery jumped 21% in May, compared with the same time last year.

SHORTAGES

Consumers, too, are feeling confident with survey results consistently showing optimists far outnumber pessimists.

Indeed, retail sales have surged 25% on a year ago and vehicle sales have skyrocketed 68%. Household goods retailing has boomed, led by appliances and furniture as people renovate homes or build new houses.

Demand is so strong that home supplies and hardware chain Bunnings is now facing a timber shortage.

Companies are also facing a labour shortage with tens of thousands of Australian citizens still stuck overseas.

Their fate hangs in the air as Australia has pledged to keep borders shut well into next year, which also means skilled migration - which was propelling the economy until 2019 - is practically impossible.

The decision to keep borders closed is popular with the general public with recent state elections showing that leaders who take a hardline stance on COVID are heavily favoured.

Tight border controls, slower interstate migration together with solid business confidence and profitability have helped tighten the labour market, with some sectors such as IT, engineering, hospitality and healthcare facing severe shortages.

This has frustrated businesses who are calling for border restrictions to be eased.

"The current international border setting is virtually no-one-in and no-one-out," said Innes Willox, chief executive of Australia's employer association Ai Group.

"This needs to give way to a more sensible position and a much more ambitious border opening goal than the July 2022 target currently adopted by the Federal Government," Willox added.

"Our critical skill shortages are only going to get worse the longer our border remains closed."

For the likes of Ravindran, however, there has never been a better time to look for work. "I am confident my contract will be renewed when it comes up for renewal. There is enough demand right now."

($1 = 1.3160 Australian dollars)

Analysis: Shut off from the world, Australia fosters red-hot growth at home
 

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Comments (8)
SH DMD
SH DMD Jun 28, 2021 3:40AM ET
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I bet this is put out by the Australian Government. What about the thousands of small businesses shut down?
Star Boi
Star Boi Jun 27, 2021 11:56PM ET
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Exports are in fact up. hardly what the CCP wanted to hear. Australia has and will move on, like the rest of the world.
David David
David9 Jun 27, 2021 11:56PM ET
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The real export is not up. Another article shows Austrialia is suffering all over. They keep calling China, but China is not ready to talk to them. China gave them 14 steps to follow before they can win back the trust. So I see not so good for Austrialia until they can fix their mistakes...
Star Boi
Star Boi Jun 27, 2021 11:56PM ET
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David David The only sources that are saying exports are down are China State Media sources which are as reliable as a lottery ticket or speculating on which direction of the wind will blow two weeks from now. Investors take their data from industry bodies or co-operatives who handle exports for farmers and are publically listed companies (not state) who are accountable for data posted to markets. Misrepresenting data risks the wrath of financial regulatory bodies and investors. It doesn't happen very often. No one care about China's 14 steps. Nor will anyone cede their sovereign rights to a belligerent obstinate dictatorial regime who can't listen to anyone from where ever in the world they hail. Want to fix mistakes? Perhaps start with your misconceptions, then start with the enormous list of China's problems and inadequacies before you criticize.
CHADWICK RICHINGTON
CHADWICK RICHINGTON Jun 27, 2021 8:05PM ET
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Printing money is not growth
Elvis Durant
Elvis Durant Jun 27, 2021 7:38PM ET
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Australia the New Fake Economy..........Haha!
Kaveh Sun
Kaveh Sun Jun 27, 2021 7:33PM ET
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2T is smaller than Apple or Msft. Did i hear 1.5T?
divad mocihc
9divaD Jun 27, 2021 7:18PM ET
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I’m happy for Australia … show me the proof that numbers are made up … Ch!Com trolls hurt the integrity of the site
David David
David9 Jun 27, 2021 7:18PM ET
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Explain to us if they are doing so great, then why are they keep calling China but China doesn't want to pickup the phone? Give us a good reason...
Star Boi
Star Boi Jun 27, 2021 7:18PM ET
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David David Yeah they dont take calls, then people move on to find other customers. Deal done. Move on. China is not the be end and be all. Life goes on with or without China. You really should stop paying attention to your own propaganda channels. You're stuck inside your own echo chamber listening to your own bias. Australian numbers are transparent, unlike the opaque economy the whole world deals with when you do business with China.
David David
David9 Jun 27, 2021 7:01PM ET
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Who do you think they can fool? Not us... they are having trouble trading with China right now and they are hurting badly... so I think these numbers are made up and does not reflex reality...
New Jazenevd
New Jazenevd Jun 27, 2021 6:57PM ET
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Australia is one of few remaining places on this planet still having sane government.
David David
David9 Jun 27, 2021 6:57PM ET
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Give us the proof they are sane... they totally messed up the relationship with China, the hand that fed them the past decades...
Star Boi
Star Boi Jun 27, 2021 6:57PM ET
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David David Get over it bro! We know you're pro CCP shill, but China is not the only country to do business with. Its called a global market place. Yep, the government had to finally get up off its bottom to make "other phone calls" besides going to the same lazy spot on their speed dial. There will always be other customers, people all over the world have needs. They all need food, they all need to make products. We dont have to sell to China. You really need to get over your self importance.
 
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