Australia’s Booming Exports Could Help Secure Future

Australian commodity boom could help strengthen public finances for the future

Australia expected to post 2 percent growth in 2011 and 3¹/₃ percent in 2012

Risks remain from stalling global growth and any faltering demand from Asia

Australia’s recovery from the global downturn has been driven by a mining boom and strong demand for its natural resources from emerging Asia. This has provided the Commonwealth government with the means to save for future downturns, and meet the growing costs of an aging society and rising health care expenses.

“This is a really historic opportunity for Australia. Commodity prices have not been as high for a very long time,” said Ray Brooks, the IMF’s mission chief for Australia. “It now needs to make the most of its situation and set itself up for the future,” he added.

Australia’s ‘enviable’ economy

Australia’s economic performance since the global financial crisis has been “enviable,” according to the IMF economists who drew up the annual assessment.

It was one of the few advanced economies to avoid falling into recession—a reflection of its strong position at the start of the crisis, a supportive macro policy response, a healthy banking system, and a flexible exchange rate, as well as robust demand from Asia.

Extraordinarily strong demand for Australian coal and iron, particularly from China’s steel mills, has pushed the country’s terms of trade to a 60-year high.

Australia’s real GDP growth is expected to pick up to 3½ percent next year after slowing to 2 percent in 2011. Growth this year was hampered by a series of natural disasters when Queensland and Western Australia were hit by cyclones and extreme flooding, which impacted exports of coal and iron ore that make up about one-third of the country’s exports.

The large rise in Australia’s terms of trade over the last decade has increased the country’s national income and improved the current account balance to about 2½...