Comparing two economic recovery programs

THE global recession continues to worsen, but the Australian economy is showing signs of recovery.

So goes one breathless media report. Though for the moment, recovery or not, the Australian economy is is far better shape than many others. According to my preferred economic commentator, Ross Gittins of the SMH, a key factor is:

“China's continuing demand for our mineral exports was the main reason for the economy's surprisingly strong performance in the March quarter (at a time when the G7 economies contracted by 2.1 per cent).”

Curiously Canada, with a similar economic dynamic, is not traveling so hopefully. I guess what I'm looking for here are the salutary lessons. Canadians tend to blame the bigger US economy for all there woes, but that probably is an over simplification. At the same time it would be an over simplification to say Australia was free and clear.

The new chief economist for Merrill Lynch Canada has finally landed and published a forecast that is significantly more optimistic about the Canadian economy in the short run, but less enthusiastic for next year. She projects that the Bank of Canada will get carried away with the surge in growth, scale back its economy-fuelling measures too fast, and undermine the recovery.

Australia's Rudd government quickly admitted the economic downturn and put in place a range of stimulus packages, essentially encouraging consumer spending, to counter negative effects on employment. Our central bank recognised the efficacy of the approach and tailored the rates changes to support the moves. Our conservatives bleated and are still bleating.

Canada's conservative Harper government initially rejected the stimulus concept and the central bank dropped rates, encouraging doubtful borrowing. It is one of those things were poor choices are made at the outset the tend to continue on. A second major factor must be the influence of China on the respective resource sectors.

Despite significant commercial argy-barge over pricing, China has continued to buy Aussie iron ore and coal, remaining the countries largest customer. In Canada China is focusing on buying the companies rather than the resources. It's worth noting that some of those companies have significant holdings in the Australian market.

So is there a lesson? It seems to me, admitting certain prejudice, that Canada is still stuck in the discredited conservative stream while Australia seems to be operating from the new pragmatism – let's do what is most likely to work. We really don't know what is happening behind the scenes with Rudd or with China, but at this stage it is working. Whether it really works only time will tell, but we are off to a good start.