Aussies Vote, Boom Continues

John Howard's conservatives may lose to Labor Nov. 24, but it won't be due to the economy, which is riding high on commodities and China trade

by Brad Howarth

Australians will go to the polls on Nov. 24 with the choice of voting out a federal government that during its 10 years in power has presided over one of the strongest sustained periods of economic growth in the nation's history. Somewhat strangely, many Aussies are in a mood to do so. Opinion polls show people have grown tired of the conservative government, led by veteran Prime Minister John Howard. The latest polling from Roy Morgan Research showed just 44% of voters support Howard's Liberal Party, compared with 56% support for the opposition, the Australian Labor Party.

Australians seem dissatisfied over rising interest rates and recent changes to workers' rights. Following the latest rate hike by the Reserve Bank of Australia on Nov. 7, the benchmark rate is at 6.75%, the highest in 11 years. The government has also this year introduced controversial changes to workplace laws, abolishing some conditions for lower-paid workers. These issues have combined with concerns about Howard's support for U.S. President George W. Bush on issues such as global climate change and Australia's role in the war in Iraq to sour Howard's previously strong popularity. Australia has 1,000 troops in Iraq, and Howard has supported Bush's opposition to the Kyoto treaty.

As a result, Howard is getting only marginal benefit from the strong performance of the Australian economy. The country is in the midst of an unprecedented boom, fueled largely by increasing demand from China and India for Australian exports of minerals. Australia is in its 16th consecutive year of strong economic expansion, with gross domestic product growth for the year ended in June, 2007, of 4.3%. The unemployment rate is just 4.3%. The mining boom has also led to some enormous gains in the stock prices of Australian resources companies, and provided the platform for Anglo-Australian giant BHP Billiton's (BHP) proposed $140 billion takeover of archrival Rio Tinto (RTP).

Mining Exports Lead Broad Growth

Whether that dissatisfaction delivers the ALP the additional 12 seats it needs in the lower house of Parliament to form a majority government will not be known until after Nov. 24. But whichever party holds power, it will be the insatiable demand of the Chinese economy for Australian mineral commodities that will have the strongest bearing on the nation's prosperity. China overtook the U.S. as Australia's second strongest trading partner in 2005. It accounts for nearly $21 billion in Australian exports, and will most likely overtake Japan to gain the No. 1 position before 2012. Whereas Australian exporters once suffered from the tyranny of distance from the world's markets, today Australia is benefiting from residing in the same time zone as its fastest-growing trading partner. "We seem to be in the right place at the right time," says the Australian Trade Commission's chief economist, Tim Harcourt.

Rising global commodity prices have buoyed Australia's mining sector to generate record income, despite only modest increases in actual output. Price increases have had a trickle-down effect into the economy, while the federal government has benefited from additional company tax revenue. ANZ Bank (ANZ) estimates that the 40% improvement in the value of Australia's exports in comparison to its imports over the past four years has lifted Australia's disposable income relative to the growth in Australia's output by an average of 1.25% per annum. This compares to an average of just under 3.5% annual growth over the same period. Overall, the ASX 200 index, which tracks Australia's 200 largest stocks, is showing a 15% improvement in valuations over 2006.