Australia has had one of the strongest economies in the world and its stock market delivered twice the gains of U.S. stocks during the recently ended global bull market.
Those trends have reversed suddenly and the Australian Bureau of Statistics reported that unemployment rose to 5.1 percent in July. Economists had been expecting that rate would remain unchanged at 4.9 percent.
Just as in the U.S., the labor force participation rate has been declining. The decision by a large number of workers to voluntarily leave the labor force has lowered unemployment in Australia by 0.4 percent since the end of last year. This is similar to the effect seen in the U.S. reports.
Mining is an important part of the Australian economy and may be the only sector currently growing according to UBS chief economist Scott Haslem. Commenting after the report was released, he noted that, “It is quite clear that outside of the mining capex (capital expenditure) and construction sectors, activity is pretty soft.”
Ben Dinte, an economist at Macquarie Research, a leading Australian economics research firm, expects unemployment to rise. “We expect the unemployment rate to gradually tick higher, not racing up towards six per cent, but we do see a gradual increase rather than a decline,” he said.
Australia’s largest export market is China, according to the Australian Government Department of Finance and Trade. That country accounts for about 22 percent of Australia’s foreign trade. The slowing economy in Australia may be confirming that Chinese authorities have succeeded in slowing their economic growth.
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