Can Australia dodge yet another recession?

• Retail sales were up 0.6% in August.

• Strong demand for business funding is fuelling confidence.

• Favourable business conditions and high demand for funding suggest the sun hasn’t yet set on the Australian economy.

The Australian Economy

The rising costs of living have given the Australian consumer pause for thought over the recent weeks and months. Higher interest rates have slowed demand for new mortgages, and it was thought inflation had slowed spending materially.

Yet this morning, the publishing of the August retail sales was up 0.6% on the month, suggesting there is some life in the legs of the Australian economy.

After employment dipped in July, 33.5k new jobs were added in August. The rise in employment has fed into consumer and business confidence.

The Westpac consumer confidence index bounced in August to positive territory after retreating on July’s survey. NAB’s business confidence survey followed suit with a positive result for August.

International Contrast

Australia’s outlook is in contrast to the US and Europe. With the US having already gone through two consecutive quarters of GDP retraction and Europe trending lower, Australia is bucking the trend.

Australia continues to benefit from the diversity and wealth of minerals underfoot. With budgets for the post-fossil fuel age insulated from the economic downturn due to the centrality of renewable energy to developed economy strategies, future demand for a wide array of metals has been sustained.

Combined with Russian trade displacement on developed nations’ markets, Australia’s wealth of resources, extraction engineering capability developed over decades, and ready access to large amounts of capital has positioned the country as the first point of call for raw material procurement.

The sustained activity in the mining sector and related services continues to aid the Australian economy. The diversity of resources, contracts, and trading partners has helped Australian output levels.

The banking sector

The CBA executive for business banking, Mike Vacy-Lyle, said: “The one thing that I do worry about is the availability of skills and demand for labour.”

Business confidence is high, small and large businesses are tapping funding for expansion, and hiring remains robust. That feeds into other economic sectors, including housing and retail.

Resources

Iron Ore has retreated from the highs of 2021 at an open market price of $98.71 USD per tonne, and the margins are still incredibly favourable. Fortescue Metals Group ASX:FMG (FMG) can extract at $16 per wet metric tonne, generating an operating profit above $80 per MT.

Coal for loading from Newcastle at over $400 USD / MT leaves a long runway of shareholder disbursement to work its way through the Australian economy.

Despite a global retreat in raw material prices, healthy margins remain to be extracted for a wide array of Australian goods and services.

Lucky country

As a result of good fortune, hard work, and a wealth of resources, Australia may yet avoid the global economic storm currently battering other markets.