Foreign Investment, Commodity Price Rise Give Australia a Boost

ECONOMY DOWN UNDER

THE Australian dollar has been flexing its muscle. Its rise to US 70 cents, analysts say, reflects increasing confidence here and abroad in the Australian economy.

The price of some domestically produced commodities is up. More foreign money has been flowing into the Australian stock market.

A growing number of investors from the United States, Europe, and Asia see Australia's market as undervalued. Daily turnover on the stockmarket at some points last week exceeded $800 million (Australian; US$562 million).

``The share market has risen a long way rapidly - it's up more than 40 percent over a year ago,'' says Ed Shann, a director of Access Economics, an economic consulting firm in Melbourne.

Australia's continued business expansion depends considerably on price trends in commodity markets and a more vigorous economic recovery in the rest of the world, economists say.

``Australia [is] seen as a country that benefits from rising commodity prices, as does the Australian dollar,'' Dr. Shann says. ``Now commodity prices, particularly metals, have picked up. US demand is picking up, the Asia demand outside of Japan is strong. But I don't see a pickup in Japan and Europe until late '94 or '95. And I'm slightly skeptical that that strength in commodity prices will continue.'' The rise in the Australian dollar also will not help the growing export market.

Nevertheless, there are steady indications of an improved economy.

The Reserve Bank of Australia, after cutting interest rates 15 times since 1990, from 18 percent to 4.75 percent, said the renewed strength of the Australian dollar was ``lessening any case for further easing in policy.''

``Business confidence continues to improve, and expectations of growth in sales and profitability have strengthened,'' the Reserve Bank said in its quarterly review. ``Most importantly, this confidence is now being reflected in rising spending on plant and equipment and an increase in employment. These trends will help to sustain the recovery.''

Although Australia's economy officially has been in recovery for the last nine quarters, the 11 percent unemployment rate has fallen little from its peak. Companies have put more money into plant upgrades than into creating new jobs. But the unemployment rate is expected to drop to just over 10 percent later this year and to around 9 percent later next year.

Last week's Dun & Bradstreet survey of business expectations foresees at least 60,000 new jobs by the end of March. That is on top of the 157,000 new jobs created over the last 12 months.

Australia already has one of the lowest inflation rates in the Organization for Economic Cooperation and Development. The rate should remain less than 3 percent over the next two years, according to the Australia and New Zealand Banking Group Ltd. (ANZ).

In its quarterly report, the ANZ forecasts employment growth of 2.5 to 3 percent this year and next. The bank says it is optimistic about the economy.

``We've seen substantial growth of 16 percent in manufacturing exports over the last five years,'' says chief economist Graham Hodges. ``Now more than two-thirds of our exports are going to Asian markets, whose growth is averaging 6.5 to 7 percent. Our export markets are growing rapidly, not just beef and coal, but engineering, legal, and education services. And we're seeing strong growth in tourism.''