With the commodity market booming and prices rising with that demand, Australia will continue to be among the most expensive nations to borrow money in as Chinese demand for raw materials fuels the sector.
According to the International Monetary Fund, gross domestic product in Australia will grow 3 percent in 2010, and 3.5 percent in 2011. That's up from forecasts earlier in the year where growth rates were estimated at 2.5 percent for this year and 3 percent in 2011.
Glenn Stevens, Reserve Bank of Australia Governor, has been aggressively raised borrowing cost in the country, and has signaled he's ready to do more going forward. In five out of the last six meetings Stevens has bumped up the rates.
The major challenge for the Australian economy is its strong reliance on the health of the Chinese economy. Australia has largely missed the ravages of the recession because of the commodity business they do with China, and that continues on to this day.
But with China trying to cool down its economy again, as it continues to want to run, that could have some downside impact on commodity demand.
Although China isn't making major changes, and change in a percentage point could cause huge waves in some prices of raw materials, so that will have to be watched closely.
The positive side of this is Australia does have time, as China is expected to grow strongly for years into the future, and Australia will grow right along with them.
It's how to prepare for the long term when China growth subsides that Australia has to look out for, but fortunately there's a lot of time to work on that, and there's also India in the wings ready to takes its place on the world stage as their middle class grows as well, although not near as fast as China's.
Domestically, both public and private demand is also expected to increase for the year, making it look like there will be a robust economy, when taking into consideration it is not overly reliant of mature economies, but is focused on emerging markets and its own domestic one.
The views expressed are the subjective opinion of the article's author and not of FinancialAdvisory.com
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