Australia still the Lucky Country

Despite sporting setbacks and corporate collapses, the outlook over the Tasman just gets brighter, reports GREG ANSLEY in Canberra.

At the start of every year since Asia began to melt down, Australia has wrung its hands and fretted that - this time - the golden days really were over.

Every year, as a graph of the 1990s produced by Reserve Bank Governor Ian Macfarlane last month demonstrated, the economy has steamrollered the gloomsayers flat.

At the end of last year there were again moments of doubt.

The Kiwis had drawn the cricket test, the Socceroos had been kicked spectacularly out of the World Cup, Anthony Mundine lay on his back in a German boxing ring and, oh yes, the American economy was heading for the tar pits.

Throw in the reverberations from a series of major corporate collapses and the more immediate concerns generated by the vast bushfires in New South Wales, and you could have expected yet another bout of jeremiad soothsaying.

But Australians are having none of that.

There is a broad mood afoot that the nation may have to slow to a more sedate trot for a bit, but that its economy will again confound the doubters and pace at the head of the developed world.

At year's end there were any number of indicators suggesting that while some of its parts may suffer, Australia is likely to power through these troubled global waters as it did during the Asian crisis.

Last month, the Economist's averaging of international economic forecasts reduced its growth forecasts for everywhere except Australia, which it revised up slightly to 3.2 per cent - the strongest growth of any of the 15 countries in the survey.

"It is not just that Australia is forecast to have the highest growth of the 15 major economies surveyed by the Economist," said Treasurer Peter Costello. "It is that it is forecast to be so much higher - almost twice the forecast growth of the second-highest growth rate and around three times the average."

A bit of tub-thumping hubris could be expected from the economic warlord of a Government that in November won its third term by destroying utterly the careers of most of its rival leaders, and which claimed a large degree of the credit for steering the nation through global tempests.

But Mr Costello has a solid body of support.

The housing industry - with the country's shopaholics, a key underpinner of growth - has survived last year's nosedive and, for the moment at least, is again powering ahead courtesy of lower interest rates and extended grants for people buying their first homes.

A suffering dollar is expected to once more help the nation punch above its weight by absorbing some of the blows dealt by lower commodity prices, maintaining commodity export earnings for 2001-2002 at about the previous year's level of $A90 billion.

A flurry of business forecasts has been downright bullish.

And the International Monetary Fund, in the special issue of its world outlook issued last month, echoed the Economist's belief that the nation would this year outperform the US, the European Union and Japan.

The IMF predicts growth in Australia of 3.3 per cent, with inflation hovering around 2.2 per cent and unemployment remaining fairly steady at about 7 per cent.

And back solidly in office, Mr Costello and his colleagues are preparing for another bout of reform.

High on the agenda are new international taxation and venture capital arrangements, an overhaul of business regulation, a review of competition law, and further industrial reforms, including tougher provisions against secondary boycotts, secret ballots for strike action, and new dismissal laws.

All this is good news for New Zealand. Australia remains our most important trading partner, increasing merchandise imports from New Zealand by 4 per cent, to $A4.68 billion, in the September year, and taking a further $A2.66 billion in Kiwi investment in 2000-2001, more than half of it in manufacturing.

When times are tough, a resilient Australia is a close and convenient bolt-hole for exporters; for the long haul, continued Australian prosperity is a powerful engine for the growth of New Zealand companies limited by the size of their own market.

Although troubled by the woes of Australian acquisitions Clints Crazy Bargains and Silly Sollys, The Warehouse last year continued its big transtasman drive, and Baycorp completed its $1.9 billion merger with Australia's Data Advantage.

Telecom - already the owner of AAPT, Australia's third-largest telecoms carrier - signed up in November to launch its Cellular One mobile network through Vodafone Australia, and sealed an alliance with Hutchison Telecommunications to fast-track development of 3-G mobiles.

Fonterra has claimed a major stake in Australia's newly deregulated dairy market with it holdings of 18.2 per cent of National Foods, 25 per cent of Bonlac Foods and 80 per cent of West Australia's Peters and Brownes.

State-owned Meridian Energy moved into the electricity market in New South Wales and Victoria. Marstel Terminals beat major local players to win important chemical storage contracts in Brisbane and Melbourne.

Air NZ hit the wall with the collapse of Ansett - now reborn under new owners Lindsay Fox and Solomon Lew - in a shakeout of the aviation market in which Qantas swallowed cut-price newcomer Impulse, launched beer-and-nuts international offshoot Australian Airlines and emerged as the undisputed titan of Australian skies, with Virgin Blue nibbling at the edges.

And for all the country's relative health, other Australian giants could not survive the shocks that rocked international and local economies - high among them the multibillion-dollar collapses of the One.Tel telecommunications group, and HIH Insurance.

Australia did not escape the world's woes. As early as February, the Reserve Bank announced the first of five interest rate cuts that by last month had sliced two percentage points off official cash rates, now down to 4.25 per cent.

The bank warned then that the global economy, led by the US, was slowing faster than expected, with a softening labour market, falling business confidence and tumbling domestic demand.

By the next rate cut last April, the Asian economic dominoes were falling, the Australian housing market was in free-fall, business conditions and confidence had plummeted, profits were squeezed between higher costs and lower demand, and retailing, wholesaling and manufacturing were hurting.

But by September, just before Osama bin Laden's attacks on the US, Australia was again confounding convention and powering away from any talk of recession.

Even with another rate cut to keep growth on track, the Reserve Bank noted rising domestic demand, a resurgent housing sector - primed by Government homebuyers' grants - and greatly improved business and consumer confidence.

September 11 knocked things back a bit - especially for the large tourism industry - but with further rate cuts in October and last month, and stubborn resilience across much of the economy, Australia remains optimistic.

The September national accounts, published last month, showed continued strong - albeit slower - annualised growth of 2.5 per cent, and November job figures trimmed the unemployment rate from 7.1 per cent to 6.7 per cent.

Export earnings for the mineral and energy sectors are expected to be pruned by lower world prices, but offset by gains from a softer dollar and rise in farm exports.

The latest National Australia Bank business survey reports rising confidence and improving conditions, with accelerating strength in retailing and wholesaling more than offsetting gloom in transport and tourism.

Another survey by Australian Industry Group-PricewaterhouseCoopers predicts a continuing recovery for manufacturing into the March quarter, Westpac reports rising consumer confidence and tips 3 per cent growth for the June year, and Dun & Bradstreet forecasts improving sales and profits in the March quarter.

Matilda still looks like waltzing this year.