Australian Economy has the Mettle

Implications: Current upswing in the economy is driven by a boom in the resources sector.But chances are events occuring in other areas of the economy could nullify any gains from the resources uptake. 

Analysis: Australia's economy is quite strong and growing, mostly driven by a mining boom due to heavy demand mostly from the resources hungry China and to a little extent from India, Russia and Japan.Most of the budgetary surplus is contributed by the resources sector, which also is the reason for low unemployment figures. But underneath the gloss there are emerging problems :

1. 12 consecutive interest rate rises  has put pressure on household incomes and instrumental in putting many houses on the block.
2. US sub-prime mortgage has started taking its toll on the banks' borrowings and thereby making funds costlier and triggering interest rate hikes .
3. Paucity of trained manpower, putting added pressure on inflation,  wage rates and skills shortage.
4. Australian dollar (AUD) reached a high of 94.98 US cents on Feb 29 '08 and then declining to a low of 90.97 US cents on 19 Mar '08, triggering a fear that the local economy will slow at a greater rate than is currently forecast.
5. A stronger currency is putting pressure on exports, imports and tourism. Tourists are finding it tough to tour Australia as it is no longer viable and therefore are flocking to other countries. 
6. Current price spurt in petrol is putting pressure on consumer household budget in addition to interest rate hikes.
7. Australian equity market which reached record highs in October has declined in line with the global markets, putting pressure on the AUD.
8. AUD is tipped to fall to 0.85 US cents in the next 2 months on the back of a decline in commodities and equities.
9. There are fears Japanese economy may follow US economy into recession with the slide in the business mood due to pessimism about Japanese business conditions, and when that happens it is going to add to the woes of the Australian economy as well as other economies of the world.

But all is not doom and gloom. The new (current) government appears to be keen on improving the economy and there may not be another interest rate hike in the immediate future.But more specific measures need to be taken and the economy must not rely solely on the mining industries for surpluses. More opportunities should be created within the economy for industires from other sectors to offset excessive reliance on the resources sector.

However, it is not all bearish for the Australian economy, it is a long term story with a strong plot.