Australia Leads Economic Recovery Riding on Commodities Strength

Australia has given a cause to cheer for the Western economies by becoming the maiden country to increase the key interest rate since the world got engulfed in the financial crisis that started two years ago. The Reserve Bank of Australia (RBA) raised the rate not once, but twice last month before releasing its quarterly financial report.

The RBA report states that export bottlenecks which have been obstructing its resources such as coal and iron ore are on the verge of being relieved. The report quotes, “Over the next two years, if capacity comes on line as planned, production of these bulk commodities could increase by around one third, with further significant increases possible over the remainder of the decade.”

Consequently, RBA has raised the growth forecast for Australian economy to 1.75%, up from 0.5%. Leading the country towards economic boom would be its mammoth natural gas reserves, the Gorgon gas field being the most notable of them. The field which has in excess of 40 trillion cubic feet of natural gas has recently inked the country’s largest deal ever with the fastest growing economy in the world, China. The 20 year long deal stipulates that PetroChina Co. Ltd. (NYSE: PTR), which is Asia’s largest oil and gas organization would buy 2.25 million tons of liquefied natural gas (LNG) every year from the Gorgon gas base.

The significant point about the Gorgon Project is that it is set to create approximately 10,000 direct and indirect jobs during peak construction. The good news is that Gorgon is not the only LNG project that will be shipping gas out of Australia. The $12 billion Pluto project is another such. According to RBA estimates, Pluto and Gorgon will together lead to a three to four fold increase in gas exports, providing stiff competition to the country’s mineral exports.

RBA quotes that, “Production increases of this magnitude would likely see the value of LNG exports increase towards a similar share of total exports as for coal or iron ore.”

All this while elsewhere in the western part of the world, U.S. Federal Reserve has stated that given the current economic conditions, the country would continue to witness “exceptionally low levels of the federal funds rate for an extended period.” United Kingdom for its part has also pegged interest rates low as the country gears up to inject another $25 billion pounds (41 billion dollars) on stimulus measures.

Likewise, the unemployment rate in Australia stands at a relatively tame 5.7% when compared with the US figure of 10.2% and the UK figure of 7.9%. Not to mention that even the commodities-rich Canada lags behind at 8.6% (October figure). The US economy though has witnessed a semblance of hope growing by 3.5% in the third quarter, riding on its “Cash for Clunkers” program while UK GDP disappointed, falling by 0.4% as consumers continue to pour a major portion of their earnings in clearing off debts.

- myVox