The “fragile 5” among the developed economies

Mathew Lynn at Market Watch writes: “Next crisis won’t come from the emerging markets Opinion: The real Fragile Five are all developed economies

His “fragile #4” is Australia:

Four: Australia. In the last decade, Australia has been turned into a massive mine for Chinese factories, but despite all those easy exports, it still manages to run a big trade deficit — more than 3.5% of GDP, even if it has narrowed in recent months.

It is a sure sign that Australians have been living beyond their means. The currency (ICAP:USDAUD)  has been hammered, falling 13% against the U.S. dollar last year. Sooner or later, the Chinese economy will rebalance more toward services, and higher-end goods, and that will mean it needs fewer Australian raw materials. When it happens, the economy will be in big trouble.

Which shows he has no idea about the Australian economy and does the sort of “seat-of-the-pants” analysis that equates a current account deficit (“living beyond their means”) with looming trouble.

If he had bothered to check, he would find that Australia has been running a current account deficit almost continuously for more than 100 years. But let´s stick to the last 54, which can easily be lifted from the RBA statistics.

Australia Fragile_1

And the bit about the currency being “hammered” reflects his lack of knowledge about what drives the A$ exchange rate!

Australia Fragile_2

Maybe he also doesn´t know that despite “living beyond its means” ‘forever’, the last time Australia experienced a recession was in 1991! A feat none of the major developed economies has equaled. It survived the Asia crisis of 1997/98 and the more recent financial crisis of 2008/09 that has pounded the major developed economies, which are still trying to make a full recovery.

Australia Fragile_3

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