Australia, driven by the biggest resource-investment expansion since the 19th century, is poised to overtake debt-laden Spain as the world’s 12th largest economy, measured by gross domestic product.
Australia’s $1.379 trillion economy will probably supplant Spain’s $1.386 trillion GDP this quarter, data compiled by Bloomberg from the national statistics agencies of both countries show. The International Monetary Fund projected in January that Australia’s economy would be $3 billion smaller than Spain’s by the end of this year.
“This is a nice microcosm of the structural shifts in the global economy away from the old developed core to the emerging and peripheral part of the global economy, in Asia particularly,” said Richard Yetsenga, head of global markets research at Australia & New Zealand Banking Group Ltd.
While the Iberian nation struggles to extricate itself from a recession, government data today showed Australia’s economy expanded 3.7 percent in the three months to June 30 from a year earlier, marking 21 consecutive years without a recession.
Spanish Prime Minister Mariano Rajoy said this month his country is unable to fund itself at the current cost of borrowing and needs sacrifices such as higher taxes to restore its national standing.
Australia, which is aiming to return its budget to surplus this financial year, has the top debt grade from all three main ratings companies, while Spain is ranked as low as Baa3 by Moody’s Investors Service, the lowest investment-grade rating. That means one more downgrade would see Spanish bonds categorized as junk debt by Moody’s.
Spain’s economy contracted in the April-June period, pushing the European Union’s highest unemployment rate to 24.6 percent, a record in the country’s 36 years of democratic history.
The jobless rate in Australia has hovered near 5 percent for the past 15 months.
Even so, Australian economists are sounding a note of caution as falling prices for iron ore and coking coal erode the nation’s terms of trade -- a measure of windfall gains from exports that reached a 140-year high in 2011.
“Various global shocks have hit the Australian economy -- the Asian financial crisis, the tech wreck, the global financial crisis to name a few,” said Michael Blythe, chief economist in Sydney at Commonwealth Bank of Australia, the nation’s largest lender. “These events would normally tip the economy into recession. But we have bounced through each pothole and come out the other side in respectable shape courtesy of the stimulus from a rising terms of trade.”
He said the falling export prices mean that some of the “insulation that has protected the economy is fraying.”