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Australia's Mining Boom: Is It Strong Enough To Move The Economy Forward?

Australia has earned the new title "Next Golden State" for all the right reasons. However, is the mining sector boom benefiting all or just a few?

Dubbed in May by leading magazine "The Economist" as the next big thing and besting other nations for economic growth and stability, Australia continues to shine with its record export earnings from commodities.

Australia has earned a US$2 billion surplus in the month of June, which was so far the highest surplus in raw terms earned by the country since 1971 if added to the full year export earnings of 2010 placed at US$20.4 billion.

The country has fully reversed the trade deficit incurred in the January to February as an impact of the floods in Queensland. However, this has been history as the country again hit new highs in exports earnings backed by a stable current account surplus during the period.

Data from the Australia Bureau of Statistics and confirmed by reports from Sydney Morning Herald indicated that the total export earnings of the country placed at $22.4 billion would be the biggest surplus recorded for the past 40 years.

"The trade data doesn't catch as much attention as the retail sales result but it's a nice reminder why the RBA keeps the rates as they are," said JP Morgan economist Ben Jarman in a related Sydney Morning Herald report.

However, the country's export earnings also result to higher inflation in the economy that can erode earnings trickling down to households, Westpac's senior economist Andrew Hanlan said.

He noted that this the reason why the Reserve Bank has kept interest rates at its current levels to at least boost consumer spending confidence and encourage them to take more loans to boost the other industries such as the housing and construction sectors.

Nevertheless, consumers in Australia have done the opposite. Taking on lesser credit and opting to stay at the sidelines and be more conservative than usual. This consumer sentiment prevailing in Australia, has however, taken a toll on Australia's retail, construction, and housing industries.

( Next issue: How will the small and medium enterprises in Australia survive this slack in the economic mining boom? )

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Commodities