Melbourne, Australia and San Francisco, U.S.A. — Australia set a new world record on June 30, 2012 of 21 years of continued economic growth – an achievement unmatched by any other developed country in recent times. While the global economic crisis endured, Australia’s trade with Asia, mining industry, and business supportive government drove positive growth for the country in 2012.

Each of the first three quarters of the 2011/2012 Australian financial year reported positive economic growth of 1.0 percent, 1.0 percent and 0.9 percent respectively according to the Australian Bureau of Statistics. Exact growth for the fourth quarter will be reported by September, but it is forecasted by HSBC to continue the positive growth pattern.

“The Australian economy has proven itself to be dynamic and robust over the past 20 years,” said PricewaterhouseCoopers Economics and Policy leader Jeremy Thorpe. “Australia’s economic strength is envied across the world. Thanks to a resilient natural resources sector, the Australian economy is well positioned for future growth.”

While natural resources attracted investors to Australia from around the world, specific regions have benefited from a focus on high-tech sectors and reinvestment in local economies. Despite making up just 3 percent of Australia’s land mass, the state of Victoria – where the city of Melbourne is located – is responsible for almost a quarter (24 percent) of Australia’s economy and has AAA credit ratings from Standard and Poor’s and Moody’s. Victoria’s economy is larger than that of Singapore or Hong Kong.

A combination of household consumption, private business investment and Victoria’s exports has driven growth. Despite the high Australian dollar, Victorian goods exports grew by 4.6 percent in the last quarter and more than nine per cent over the year.

The most recent release of Australia’s National Accounts showed that final demand within the state of Victoria had increased by 1.8 percent over the March quarter and 2.7 percent over the year. Victoria’s growth over the last quarter was the strongest of all states with exception of Western Australia which is the beneficiary of the mining boom.

Melbourne is the center of the $1.4 trillion Australian pension industry as well as headquarters of the country’s leading sovereign wealth funds and half of Australia’s leading banks. It is one of the world’s foremost biotechnology hubs and home to more research universities than any other city of its size.

Its expertise in information communications technology has drawn major investment from Microsoft, IBM and Computershare, and the network operations center for the ambitious National Broadband Network. Studies show that companies conducting R&D in Melbourne bear 88 percent less tax burden than in the United States.

“Victoria has always hosted a diverse and smart economy,” said Michael Kapel, Commissioner to the Americas for the Government of Victoria, Australia. “The government of Victoria continues to offer innovative ways to encourage growth, including recent incentives such as the R&D tax credit, which makes Melbourne one of the most attractive locations in the world for R&D. We are inviting US companies to follow the likes of Microsoft and IBM to come to Melbourne and be part of one of the world’s most reliable and dynamic economies.”

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The multiplicity of global economic complexity of the recent past and a fragile economic future has led the Asian economic linchpin, China, to cut its growth forecast. Recently, the country cut its economic growth rate to 7.5 percent from its previous 8 percent, which had been in place since 2005.

Premier Wen Jiabao, in his annual state of the union, announced at the National People’s Congress in Beijing that the government has a gross domestic product target of 7.5 this year. This is the lowest economic growth target for China since 2004.

Across the board, there are plenty of problems that may impart great damage on the Chinese economy. Starting with a decline in European services and manufacturing output, a fall in US factory orders for the first time in three months, and an impending Greek debt storm, China is going through a radical demographic makeover.

The main suspect for this turnaround in growth forecast is the debt crisis in Europe and the US. This is because there is an iron-strong connection between what China produces and with whom it exchanges goods.

Demand for Chinese goods declined in troubled economies due to falling employment, diminishing domestic production, dragging corporate profits, high borrowing costs for the government, and perhaps only a few ways to get out of it. After years of a torrid growth rate of at least 9 percent, China needs better quality development over a longer period of time. Economists and investors agree that China is now entering a new era of slower growth rate, where the 8 percent growth figure is no longer important.

On the other hand, what happens in China does not stay in China. China had been the number one trading partner for most Asian countries, and a declining economy for the dragon will hit many Asian economies negatively. On the face of it, Chinese commodity imports may slow down, impacting economies from Australia to Brazil.

Interconnections at the global economic platform have created a scenario where it is legitimately impossible to imagine escaping from these  events.  It is ubiquitous that a lower phase of GDP growth in China will diminish import demand in the country, affecting economies or trading partners directly.

In a globalized environment, interconnection is interdependence. Suppose, for example, X is partly independent, and Y and Z are mostly dependent on X.

Any event that has a direct forbearance on Y and Z that takes place in X will for sure impact both Y and Z. In this case, export-oriented economies, like Australia, whose economic growth was derived from fast and partly unfettered GDP run-up in China, will suffer. On the face of it, prices of copper, gold, and the Australian dollar have fallen immediately after the announcement in Beijing, mining stocks in the Australian stock exchange felt headwinds, and the region’s stock market closed on a weak note.

Gerard Lyons, chief economist at Standard Chartered Bank in London, stated, “What the authorities are trying to do is to move from strong to sustainable rates of growth. No one is quite clear where sustainable is, but clearly, it’s one that’s slower than we’ve seen in the recent past.”

At the end, we could say there is a possibility of radical economic transformation in China, emphasizing development, rather than an erratic chase for economic growth.

Image Courtesy of  BartlomiejMagierowski / Shutterstock.com

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