It is tempting to be envious of Australians.
They do very well at the Olympics. They boast wonderful cities and gorgeous beaches, and outrank Canada in the United Nations Human Development Index. (They're second, we're fourth.) To be sure, they have to put up with poisonous spiders and Vegemite, and their forest fires are really more of a season than an event. Still, they are nicknamed the Lucky Country for a reason.
Now, the nation that gave birth to the sunny stylings of both The Bee Gees and Olivia Newton-John has given the world something even more optimistic: hope that the global economic recovery is truly gaining some traction.
On Oct. 5, the Reserve Bank of Australia, the county's central bank, raised eyebrows by being the first major economy to raise interest rates. In other words, the Australians tapped on the economic brakes while the rest of the industrialized world is scrambling to stomp harder on the accelerator.
The RBA's press release was peppered with cheery notes such as “Economic conditions in Australia have been stronger than expected and measures of confidence have recovered,” and “Housing credit growth has been solid and dwelling prices have risen appreciably over the past six months.”
What is going on down there? Didn't they get the memo about the world crisis?
In fact, Australia is one of a very few OECD countries that did not slip into recession in this latest global downturn. Recently, the country has posted its biggest job gains in two years, with an increase of 41,000 jobs in September alone. The unemployment rate has fallen to 5.7 per cent. Investment in the country has stayed strong, and the Australian dollar is a star performer on the international currency stage.
The RBA's move stirred chatter about the likelihood of other countries – such as Canada – being next to hit the brakes and raise rates. The prospect that Canada might follow suit excited currency speculators and helped lift the Canadian dollar within minutes of the Australian rate hike.
Those speculators might be forgiven for their enthusiasm in Canada's economy. After all, the two countries have a lot in common.
They are both medium-sized economies with thin populations spread across an enormous, unforgiving geography. They are both former British colonies, and Queen Elizabeth is both countries' head of state (although Australia has flirted openly with going it alone as a republic, and Canada's Governor-General evidently has a particular interpretation of her role).
WHERE THE SIMILARITIES END
Also, both countries were in good fiscal shape going into the global downturn. Because they ran large surpluses for several consecutive years, the federal governments in both Ottawa and Canberra introduced stimulus programs and tipped into deficit without impairing their credit ratings. Both countries have strong banking sectors, in which stricter regulations and more conservative lending prevented much of the collateral damage that hit Europe at the time of the U.S. banking meltdown last year.
Most importantly, both countries are significant natural-resource exporters, particularly base metal mining and energy products. That makes the currencies of both countries extremely sensitive to movements in commodity prices. Both the Canadian and Australian dollars have been soaring lately, in no small part because of rising resource prices.
Here is where the similarities end. Although Canada and Australia have much in common, the likelihood that Australia's monetary action is a harbinger of rate increases in Canada is almost zero. There are some striking differences that put our southern sister in a completely different economic orbit.
