The July edition of World Risk Developments, the newsletter from Export Finance and Insurance Corporation (EFIC)
notes that Australia's economic growth has been accelerating over the past six months as the world economy slows down.
However, EFIC chief economist Roger Donnelly says that confidence at the start of the year has been replaced by concern about the euro area first and foremost, but also about the US and China. Not only are the euro area and UK looking prone to double-dip recessions, emerging economies are also undergoing sharp slowdowns.
According to EFIC senior economist Dougal Crawford, Chinese growth has also been relatively weak in the first half of 2012 while India is persistently battling high inflation. Looking beyond Chindia to other BRICs, Brazil's economy appears to have stalled.
The American economy has been slowing through the first half of 2012, and is quickly moving towards a fiscal tightening of 4% of GDP that will occur if a large number of spending programs and tax cuts scheduled to end on December 31 are not extended. If tightening does occur as legislated, GDP growth will slow markedly in 2013.
To the question whether another severe international downturn, brought on by the euro area, US or Chindia would set back many projects in Australia’s bulging resource investment pipeline, Donnelly says that the pipeline is fortunately so bulging at $500 billion that even if ‘less advanced’ projects without committed financiers and overseas customers go into hibernation or die, 'advanced' projects will still propel investment.
He adds that the global recovery is likely to be a fragile one in the next six months but in Australia, the commodity prices will remain well above-trend and the resource investment boom on track.