US economy leads the way downhill with Aust close behind
By Garry Shilson-Josling, AAP Economist30 Apr 2009 4:47 PM
SYDNEY, April 30 AAP - Now is a good time to remind yourself that the past two years, when economic growth in Australia outpaced growth in the United States, were out of the ordinary.
In the past decade Australia has shown tantalising signs of shrugging off its historical tendency to mimic the ups and downs in the US economy.
In 2001, when the US was trapped in the wreckage of the tech stock crash and posted gross domestic product (GDP) growth of just 0.2 per cent, Australia's racked up an above-trend 4.1 per cent expansion.
It was much the same in 2007 as the collapsed housing market slowed the US to a crawl while the commodities boom pushed Australia along.
But these periods of divergence are outliers, exceptions to the rule despite the emergence of Japan, Korea and China as more significant export destinations.
Those three economies, like Australia's other trading partners, are still part of an international economy with the US at its centre.
When the US sneezes, they still catch pneumonia, as the old saying goes.
The events of the past couple of years do nothing if not confirm that.
But they have done more - they have hammered the point that international linkages are more than just trade in goods and services.
Financial links are no less important, something that might have seemed implausible before mid-2007 when the financial pandemic swept the world as the market for sub-prime loans imploded, but certainly not since that time.
The Australian and US share markets have moved in lockstep.
And the fear that came to dominate lending institutions in the US is no less pervasive in Australia, despite the relative absence of toxic debt on the balance sheets of Australia's banks and other financiers.
Against this background, the latest national income and product accounts from the US are a grim warning that Australia is not out of the woods by any means.
The US economy contracted by 1.6 per cent in the first quarter of this year, the same as it did in the previous three months, the figures from the US Department of Commerce showed.
The weakness has been marked by simultaneous collapses in housing construction, exports, and business investment in structures, equipment and software and inventories.
Consumer spending bounced back in the first quarter after two steep quarterly declines, but the bounce was weak.
The two steep falls in a row made the latest half year the weakest by far in the history of the accounts, which started back in 1959.
To date, Australia's recession has been relatively shallow, at least as far as the official gross domestic product (GDP) figures takes us - up to the end of 2008.
But Australia is heading in the same direction - downhill - and may have some way to go before reaching the bottom.
Annual GDP growth in the US turned negative for the first time since 1991 in the final quarter of last year.
The national accounts for Australia are due on June 3 and should confirm the Australian economy contracted again in the March quarter, with annual growth turning negative also for the first time since 1991, only three months behind the US.
