Australia’s Deputy Prime Minister and Treasurer Wayne Swan disputed the theory of Andy Xie, former chief Asia-Pacific economist for Morgan Stanley (NYSE:MS) that the economy of Australia is at risk and it might suffer a Spain-like economic crisis.
Xie who is currently practicing as an independent economist, states that Australia’s economy is in danger of becoming the next Spain because it is highly dependent to foreign demand particularly from China and to its mining sector. He explained that before Spain suffered financial crisis, its government had budget surplus and the economy was very strong. Foreign investments flooded Spain due to high interest rates, which caused the property bubble. According to him, the same situation is happening with Australia wherein foreign investors are rushing to invest in the mining industry and the flow of money might result to a “disastrous consequence.”
PM Swan described Xie’s view as “absurd” and needs “re-education” during an interview with CNBC’s Capital Connection. He emphasized the strength of the Australian economy and its fundamentals by citing Australia’s 4 percent growth. He also pointed out that Australia economic growth is faster than the economy of other developed countries.
The Deputy Prime Minister discusses the fundamentals of country’s economy and notes that Australia has a projected surplus budget for 2012 to 2013, it has low un-employment rate, strong job creation, and a record of half a trillion investments pipeline in resources. After enumerating these fundamentals, Swan added the question, “What planet does he live on?” referring to Xie.
Swan says that Australia was not affected by the lending practices that caused the global financial crisis in 2007, because Australia has first-class regulators. He is confident that Australia’s banking system is very healthy compared with other banking systems elsewhere, citing that the four of the country’s big banks are among the top nine with AA rating.
In terms of the mining industry, Swan explained that the implementation of the mining resources tax and carbon dioxide levy also known as “super profits tax” were implemented because the country needs long-term reform to strengthen the country’s resilience. He states, “You can’t build in the 21st century a successful, prosperous and developed economy unless you are powered by renewable energy and more efficient energy practice.”
Moreover, Swan is confident that Australia’s flexibility to lower interest rate, strong fiscal position and low level of public debt at 8.9 percent of GDP would help the country’s economy to withstand a crisis.
Previously, we reported some insights from Ray Dalio, co-CIO of Bridgewater Associates, the world largest hedge-fund firm, regarding Australia’s economy. Dalio thinks that Australia managed the global economic crisis fairly well. He noted that the rising personal debt level as well as deleveraging has not hurt the country. The Australian government also managed to avoid the slide of housing prices by implementing different forms of incentives, and that inflation is moderating. His observations reflect that Australia’s economy is not in trouble just like what Deputy Prime Minister Swan said. All negative speculations about the economic situation of the country is “absurd.”
What do you think?