Australia’s China Luck Longing
Australia headed into September elections with Labor under restored Prime Minister Rudd trailing the opposition, as interest rates were cut again with the GDP growth forecast at 2.5 percent and the local dollar at a 3-year low on iron ore prices off 20 percent on wilting Chinese deliveries. Headline inflation too is at 2.5 percent on flat credit extension despite rising home values in major cities. Rater S&P recently calculated that 7 percent economic growth on the mainland would have a strong knock on effect on natural resources, mining and housing and that a “hard landing” could result in sovereign downgrade. Bilateral trade accounted for 8 percent of output last year and a business task force recommended that stepped-up infrastructure investment at half that amount could help offset medium-term commodities decline. Services represent three-quarters of national income but the central bank has been on watch for property overheating as banking and tourism struggle to maintain balance. The continent pursues the same hydrocarbon backstop of adjacent Papua New Guinea where a $20 billion Exxon-Mobil natural gas pipeline is due to go on stream in 2014 to sustain 6 percent growth. The Prime Minister there was re-elected in 2012 and has reduced traditional foreign aid reliance to one-tenth of revenue. Metals exports have been the main commercial drivers, and the Chinese and Japanese are the contracted gas buyers. Gold has suffered from market tumbles as Australia’s Newcrest was forced into a $3 billion write-off of its Lihir project. A sovereign wealth fund attempts to manage resource flows and diversify the economy but has stumbled on corruption and poor governance. An estimated 90 percent of the island population is unbanked despite mobile platform strides. Agricultural operator New Britain Palm Oil is dual listed on the London and Port Moresby stock exchanges and recently received a Malaysian competitor takeover offer. Hydropower and consumer goods are nascent sectors and electronic settlement was introduced last year. Government bonds may be added to the bourse as secondary trading develops and ties with leading trade partner Australia may be smoothed with a temporary asylum review agreement for boat-traveling migrants. A double-tax treaty applies with Indonesia as ASEAN outreach continues, but overseas business executives are deterred by the high costs and precarious security of the capital where violent crime ranks with war zones elsewhere.
Pakistan has been the outperforming Asian MSCI frontier member up 25 percent at end-July on the return of economic reformer prime minister Sharif who immediately inked a new $5.5 billion IMF loan to staunch reserve bleeding. The budget deficit for the latest period was double the 4.5 percent of GDP target and better tax collection and state enterprise privatization are designed to achieve the goal over three years to also allow for increased energy capacity. The Karachi stock market vaulted initially on fiscal amnesty replacing a bar to ill-gotten fortune.
