Australia's remarkable economic performance

It's really very interesting, and it's also very unusual, for the Australian economy to decouple in the way it has from the developed world. It's also interesting to look back at previous forecasts.

The chart shows official Australian forecasts of GDP at the start of last November. At that stage, Australia was expected to be the only developed country other than Canada to stay in positive growth territory.

Following these forecasts,the global outlook worsened and Australian pessimism set in, something that I tried to fight against. All the forecasts went quite negative.

In recent times, Australia has been clawing back. Interest rates have started to rise, the Australian Government is looking to trim stimulus, and house prices have boomed.

The attached chart shows the latest Australian Treasury forecasts for GDP growth. Australian GDP growth in 2009 is now expected to be greater than that projected in November.

Australia is unusual as the only developed country now expected to show positive GDP growth in calendar 2009.

How real is all this?

It's real enough, although in Australia as in other countries Government stimulus packages played a major role in countering the downturn.

The issue that Australia now faces is what's next. And here there are some interesting variables indeed.