The Australian economy is the 13th largest in the world, with a GDP of $1.2 trillion. The country has a population of 22.6 million, and a labor force of 11.6 million. GDP per capita comes out to $39,700 which was good for about 10th place in the world. The economy grew 3.3% in 2010.

The economy is dominated by its services sector, which makes up about 68% of GDP. Agriculture and mining amount for another 10% of GDP, and make up around 57% of the nations exports. The country is rich in natural resources, and its mining sector has seen a once-in-a-century boom as a result of surging prices for commodities. Its mining sector not accounts for 8% of GDP, up from 4% in 1994. Manufacturing accounts for another 12% of GDP.

Released for: Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec   Q1 Q2 Q3 Q4 GDP q/q -0.9%     1.2%                 WMI Leading Index 0.3% 0.5% 0.6% 0.2% -0.1% 0.1% 0.5% 0.8%         CB Leading Index 0.1% 0.6% -0.1% 0.2% -0.1% -0.8% 0.0% -0.1%         Manufact. PMI 51.6 51.3                       – 2011 46.7 51.1 47.9 48.4 47.7 52.9 43.4 43.3 42.3 47.4 47.8 50.2 Services PMI 51.9 46.7 47.0 39.6                   – 2011 45.5 48.7 46.5 51.5 49.9 48.5 48.8 52.1 50.3 48.8 47.7 49.0 Construct. PMI 39.8 35.6                       – 2011 40.2 44.6 39.4 37.9 39.6 35.8 36.1 32.1 30.0 34.7 39.6 41.0 Private New Capital Expend. 7.7%     4.9%                 Demand Retail Sales 0.3%                         – 2011 0.4% 0.5% -0.5% 1.2% -0.6% -0.1% 0.6% 0.6% 0.4% 0.2% 0.1% -0.1% Vehicle Sales -2.4% 0.2% 3.9% -4.1% -7.5% 1.9% 9.0% 3.3% -1.5%       Private Sector Credit 0.3% 0.6% 0.6% 0.0% 0.3% -0.1% 0.3% 0.2%         WMI Consumer Sentiment -5.7% 1.9% -2.4% 1.2% -1.3% -2.6% -8.3% -3.5% 8.1% 0.4%     NAB Business Confidence 4 14 9 7 6 0 2 -8 -2       Corporate Profits -2.2%     6.7%                 Employment and Confidence Employment Change 7.7K -8.6K 43.3K -29.4K 7.8K 18.2K -4.1K -10.5K 20.4K       Unempl. Rate 5.0% 5.0% 4.9% 4.9% 4.9% 4.9% 5.1% 5.3% 5.2%       ANZ Job Advertisements 3.0% 1.1% 1.3% -0.4% -6.5% 3.8% -0.6% -0.6%         Wage Price Index q/q 0.8%     0.9%                 Trade and Current Account Trade Balance -0.67B                         – 2011 1.43B -0.09B 1.69B 1.62B 2.70B 1.82B 1.82B 2.95B 2.25B 1.42B 1.34B 1.33B Current Acct. -11.1B     -7.4B                 Inflation RBA Rate 4.75% 4.75% 4.75% 4.75% 4.75% 4.75% 4.75% 4.75% 4.75%       CPI q/q 1.6%     0.9%     0.6%           PPI q/q 1.2%     0.8%     0.6%           Import Prices 1.4%     0.8%     0.0%           TDMI Inflation Gauge 0.2% 0.1%                     – 2011 0.4% 0.2% 0.6% 0.3% 0.2% 0.0% 0.3% -0.1% 0.1% 0.1% -0.1% 0.5% RBA Infl. Expect. 4.3% 3.6% 3.5% 3.3% 3.3% 3.4% 2.7% 2.8% 3.1%       RBA Comm. Index y/y 5.1% 3.5%                       – 2011 48.7% 44.9% 42.2% 31.9% 29.1% 28.2% 28.9% 25.1% 26.6% 19.6% 17.5% 9.6% Housing New Home Sales 2.4% 0.6% 4.3% 0.2% -0.2% -8.7% -8.0% 1.1%         Building Approvals -11.6% -5.3% 8.6% -0.3% -6.3% -3.6% 1.8% 11.4%         Home Loans -6.3% -4.7% -1.1% 4.6% 2.8% 0.6% 1.9% 1.2%         Housing Starts q/q 3.3%     -4.7%                 Construction Work Done q/q 1.2%     0.7%                 House Price Index q/q -0.1%     -1.1%

RBA Interest Rate

The Reserve Bank of Australia tries to keep inflation in a range of 2-3%. Prior to the financial crisis the RBA had hiked rates up to 7.25%, the highest in the developed world, which made Australian assets more attractive to foreign investors. In response to the financial crisis in 2008, the RBA slashed rates to 3%, and after the bottom in 2009, seeing its economy rebounding thanks to its mining boom, and inflation picking up the RBA was one of the first central banks in the developed world to begin raising interest rates, bring rates up to 4.75%. Again, that has made the Aussie a prime destination for carry trade and has attracted foreign flows to the country – helping to boost the Australian Dollar to new record highs in 2011.

Inflation – CPI q/q

Inflation is released quarterly by the government of Australia, though we do have a private monthly look at inflation in the form of the TDMI inflation gauge. As we mentioned above, the RBA tries to keep inflation to an annual pace of 2-3%. After bouncing around between 0.5% and 1% in quarterly terms between mid-2009 and the end of 2010, the first quarter of 2011 saw a sharp spike in the headline CPI as it posted a 1.5% quarterly change. Some of that is a response to natural disasters in the country that limited supply of goods, causing price increases, but in any case it got the attention of the RBA which said that more interest rate increases will be needed to keep inflation on target.

Growth – GDP q/q

The Australian economy was one of the few to skirt an official recession during 2008-2009, as the economy only posted 1 quarter of negative growth. Its quick rebound came as a result of strong demand for its commodities which helped to fuel a jobs boom in the mining sector. Growth slowed during the 3rd quarter quarter (0.1% revised gain), but managed to bounce back to end 2010. Overall, the economy grew 3.3%. Because of strong flooding and a powerful cyclone, expectations are for a weaker 1st quarter in 2011, but that reconstruction efforts would make up for that weak quarter the rest of the year.

Labor – Unemployment Rate

After climbing to 6% as a result of the dislocations following the Great Recession of 2008-2009, the Australian labor market in the subsequent 2 years has been steadily adding jobs and the unemployment rate has dropped below the 5% level, which is considered full employment in Australia. Full employment means that workers have more leverage in setting wages as a tight labor market means workers can seek other jobs. That can cause underlying inflation to increase as wages form the bulk of core prices.