Asia Pacic Economic Outlook—February 2013 2
The Australian economy is estimated to haveachieved its best perormance since 2007 aterenjoying a 3.5 percent expansion in 2012.
Downside risks to growth appear to have diminished, butthe economy is not out o the woods yet; a worseningdebt crisis in Europe could have signicant ramicationsor Australia. While the country’s direct export exposureto Europe is limited, Australia depends on credit romEuropean banks, which could dry up in the event o a crisis,to meet its nancing requirements. On the other hand,the Chinese economy seems to have turned a corner,and the demand or resources rom China and otherparts o Asia will uel growth in Australia’s mining sector.Moreover, Japan’s new government has embarked uponan aggressive policy agenda, and the US economy has,so ar, avoided a severe scal contraction. These actorsbode well or Australia’s growth prospects. Australia’sGDP is expected to expand by 3 percent in 2013 onthe back o higher capital investments, strong outputgrowth in the mining sector, and increased exports.Australia’s housing sector is staging a recovery, but itmay be too early to suggest a turnaround. An uptick indemand has pushed average house prices in Australia’scapital cities up by 1.6 percent in Q4 2012. The housingsector seems to have benetted rom the central bank’srate cuts, which have made housing more aordable andadded to the condence o homebuyers. Furthermore,ewer Australians are now deaulting on their mortgagepayments as a result o lower interest rates and slowergrowth in house prices. However, housing approvaldata showed that the number o approved dwellingsell 4.4 percent in December ater rising 3.4 percent inthe previous month. With housing prices moving higher,investments in this sector will likely increase in the comingmonths and prices are expected to inch up gradually.Meanwhile, contrary to expectations, retail sales ell by 0.2percent in December. Retail sales have been weak sinceOctober 2012, but the December reading is particularlydisconcerting against the backdrop o a mild recovery inthe housing sector. The holiday season and the centralbank’s rate cut did not translate into higher consumerspending. While the weakness in the overall level o retailsales is disappointing, sectors such as ootwear, clothing,and electronics posted small gains. Furthermore, newvehicle sales made a strong start in 2013, up 11.3 percentin January over the previous year despite a sharp drop in