Optimism gradually returning to Australian economy

Photo / Mark Mitchell

Optimism is beginning to creep back into the Australian economy despite uncertainties about conditions among the world's major players.

Following encouraging observations by the Reserve Bank in its decision on Tuesday to leave official cash rates unchanged at 3 per cent, a survey of China-based accounting and business professionals yesterday pointed to emerging recovery in one of Australia's most important markets.

Prime Minister Kevin Rudd has also delivered an upbeat assessment of Australian prospects to a European audience and pointed to "green shoots" appearing in the global economy.

And the latest Westpac-Melbourne Institute index of consumer sentiment yesterday reported a 9.3 per cent rise from last month to 109.4 points, an 18-month peak and the first time optimists have outnumbered pessimists since December 2007.

But the pain still being suffered in Australia was underlined by the Fair Pay Commission's decision to reject an increase in the minimum wage, effectively freezing it at about A$543 ($679) a week until July next year.

The decision, the last by the commission before its replacement by a new Labor-designed body, is the first freeze in more than 25 years and will affect more than 1.3 million of the nation's poorest workers.

The commission blocked an increase to protect employment and avoid job-shedding, but has been attacked by unions and the Government.

Despite expectations of further pain, Reserve Bank Governor Glenn Stevens said economic conditions in Australia had not been as weak as previously expected, and the global economy was stabilising.

Importantly for Australia's key resources sector, Stevens said growth in China had strengthened considerably, an assessment supported by yesterday's CPA Australia survey.

The survey found that almost two-thirds of China-based CPA members expected the mainland economy to start recovering by mid-2010, with 75 per cent predicting GDP growth of 6-8 per cent by the end of this year.

Driven largely by Government spending, the survey predicted manufacturing, real estate, retailing and trade and exports to lead the nation's economic resurgence.

The survey further found that two-thirds of respondents did not believe the global economic crisis would hit Chinese investment in Australia over the next 12 months.

Most also expected China to overtake the United States as Australia's largest source of imports this year, with growth in bilateral trade led by mining and energy, professional services and tourism.

Almost half predicted that more than 10 per cent of Chinese funds authorised under the Qualified Domestic Institutional Investor Scheme would be invested in Australia.

The scheme was established in 2006 to allow Chinese investors access to recognised overseas equities markets through products offered by approved Chinese banks, securities institutions and insurers.

In Berlin, Rudd said in a speech that Australia had weathered the global economic crisis better than most countries and had so far avoided falling into a technical recession.

He said that measures launched by Australia and other G20 members had helped contain the crisis, and that the first tentative signs of recovery were emerging.

These included stabilisation in financial markets - marked by 35 per cent cent second-quarter growth in Standard & Poor's 500 Index - and upgraded forecasts from the International Monetary Fund and the OECD.

But he warned that while these "green shoots" were a welcome respite, there was no cause for complacency.

Rudd said Australia supported Germany's proposal for a G20 charter for sustainable economic activity to develop a new, overarching frame-work for future global economic challenges.

"If achieved, such a charter could reflect a historic convergence of developing, emerging and advanced economies' views about what sustainable economic activity really means, and how we go about achieving this common aim through properly co-ordinated national policy actions," he said.