Papers in the Maple Country were busy last week reporting about an unexpected and somewhat stunning slip in their GDP of 0.1% in August. Canada´s economy is stalling, only three months after the Bank of Canada declared the recession was over. While they reported the disappointing GDP number, the country´s news carriers still found plenty of editorial space to reflect on Australia´s current economic leadership. How could Australia race ahead, even though both countries shared lots of similarities ?: "They are both medium-sized economies with thin populations spread across an enormous, unforgiving geography ... they are both former British colonies ... both in good fiscal shape ... strong banking sectors ... stricter regulations and more conservative lending ... both countries are significant natural-resource exporters", summarized the Globe and Mail.

The paper found two major explanations. One is the fact that Australia - compared to Canada - has a relatively small manufacturing sector. So Australia has been saved much of the pain that is still being felt in Ontario, where global OEM´s have produced more passenger cars for the last five years than the industry´s dinosaurs in Detroit. But the primary reason the paper found for Australia making a difference now, is its proximity to rapidly recovering Asian markets. While Canada´s export industries are reeling under the collapse in the U.S., Australia is experiencing lots of tailwind from its leading trading partner China. The People´s Republic managed to revitalize its economy within months this year, engineering an 8.9% GDP growth in the third quarter.

The fact sheet of Australia´s recovery

Australia is the only developed country that was able to avoid the latest recession. GDP unexpectedly accelerated in the June quarter at the fastest pace in more than a year, expanding 0.6% from the first quarter when it gained 0.4%. The record now stands at 17 consecutive years of economic growth. On October 6, the Reserve Bank of Australia was the first among G20 central banks to raise rates, by 25 basis points to 3.25. In mid-October the Australian Bureau of Statistics announced a drop in unemployment in September alongside the fastest pace of jobs growth in almost two years. The unemployment rate has fallen to 5.7%. In October, consumer confidence jumped to the highest level since 2007 because rising employment, rebounding real estate and improving share prices buoyed sentiment. In the three months through September, Australian home prices rose for a second quarter in a row, gaining 4.2%.

The surge in consumer confidence has driven up retail sales, home building and mortgage lending. On November 2, Australian Treasurer Wayne Swan announced that the country´s economy will grow faster than forecast in May, reducing government debt over the next five years by A$50 billion. According to Swan, the economy will grow 1.5% in the 12 months to June 2010, compared with the earlier prediction of an 0.5% contraction. The International Monetary Fund (IMF), meanwhile, has reiterated its earlier prediction that Australia´s economy will expand 0.7% during the calendar year and grow 2% in 2010. Last month, the World Economic Forum (WEF), in its latest international financial survey, put Australia in second place behind only the UK. According to the ranking Australia has now overtaken the U.S. as a top global financial centre. The WEF´s rankings are based on such variables as institutional and business environments, financial stability and size or depth of capital markets.

Aussie-Dollar heading towards parity with the Greenback

Australia´s strong position as a major commodities supplier combined with rising interest rates and economic growth are providing good opportunities for international investors. "Canadians that jumped on board the Aussie band wagon at the start of the year would have realized a return of 40%", calculated Canada´s National Post on October 10. The S&P/ASX 200 index , Australia´s benchmark stock index, is up 22% in the year. The Australian stock market offers excellent exposure to commodities, especially base metals and precious metals. With China - Australia´s biggest trading partner and number one commodities importer - forecasting 16% growth in industrial output for the fourth quarter, Australia is also a good place to bet on the ongoing China story.

International investors, though, can realize more than just the increases in local stock prices. They can also gain on the Australian dollar. In October, the currency advanced to the highest level since August 2008, when it topped 92 U.S. cents. After Reserve Bank of Australia Governor Glenn Stevens said on October 15, the central bank can´t be "too timid" in raising interest rates, the Aussie advanced against 14 of its 16 major counterparts. The markets interpreted Stevens´ comments as leaning toward a more aggressive stance. The main reason for the Aussie dollars´ strength right now - except for the strong economy - are rising rates. The yield on the one-year government bond climbed to 4.36% on November 2. The premium that Australian two-year government debt offers over U.S. Treasuries has surged to the highest differential since September 2008. Australia´s dollar has risen 31% this year against the greenback, which is the third-best performance among the 16 most-traded currencies. The chance of gaining parity with the U.S. dollar, which is forecast by an increasing number of observers within months, has become a matter of national pride. For some the Aussie dollar has been known as the "little battler" because of the pounding it took after it was freely floated back in 1983.