Wednesday, June 03, 2009

The Recovery Is On! Fair Dinkum!

By MarketWatch's Myra P. Saefong reports Australia's gross domestic product is up in the first quarter and in comparison with last year's first quarter.

She writes, "The nation's GDP expanded by seasonally adjusted 0.4% in the first quarter, both in comparison with the same quarter a year ago and with the fourth quarter," citing the Australian Bureau of Statistics.

The All Ordinaries gained 62 points going over 4,000 for the first time since November. Hallelujah!

The Aussie dollar is also up. Ms. Saefong reports "The Australian dollar also strengthened, with one Australian dollar buying 82.26 U.S. cents, up from the previous close of 82.07 U.S. cents."

In the fourth-quarter, Australia's GDP dropped 0.6%, the first drop in eight years. Apparently the Aussie national income accountants do not report growth rates in seasonally adjusted annual rates annualized. It makes the numbers less dramatic.

"The bureau said that growth on the expenditure side over the past four quarters was driven by household spending and by exports, offset by a fall in inventories."

Disclosure: your correspondent has shares in an Aussie closed end fund.

What does it mean?

Australia's economy is tied to Asia. When the Chinese dragon stokes up its furnace, Australia and Brazil feed the beast the inputs that fuel its exuberance. Thus Australia's economic growth and the Aussie dollar are leading indicators of the globalized economy.

This implies that the world economy is recovering. Further dramatic confirmation can be found in the Baltic Dry Index, an indicator of shipping prices. As trade picks up, it costs more to hire a ship to transport it. The index has increased four-fold since December returning to the boom levels of 2004-6 and soaring toward the bubble levels of mid-2008.

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