It used to be said that if the United States sneezed, the Australian economy caught the flu. But no more.
An analysis by the International Monetary Fund (IMF) has found that in the past 10 years, economic shocks in the US no longer have a significant impact on Australia. But Asia does.
In a separate article on Australia and New Zealand in its Regional Outlook for the Asia Pacific released in Hong Kong on Thursday, the IMF said economic shocks from the emerging economies of Asia have overtaken the US as the most important external factor influencing Australian business.
Using a sample period from 1991 to 2010, it found a one per cent shock to US gross domestic product (GDP) led to a move of about 0.4 per cent in Australian growth.
In contrast, GDP shocks from emerging Asian economies had an almost negligible impact on Australia.
However, the result for the shorter sample period of 2000-2010 was dramatically different, with a one per cent shock in emerging Asia producing a shift in Australian growth of 0.33 per cent.
"The impact of US GDP shocks on Australia is no longer statistically significant," the report says.
As such, the long-term trend of continued strong growth in emerging Asia bodes well for Australia.
"Should emerging Asia continue to grow notably faster than the world average, the impact on Australia will be even larger than in the past," the IMF's modelling found.
"This larger impact reflects both the increase in emerging Asia's economic size and Australia's growing integration with emerging Asia."
Over the next 10 years, the analysis suggests that a 50 per cent increase in emerging Asia's GDP, driven by tradeable sector productivity growth, would raise the Australian GDP by about 20 per cent.
"However, should emerging Asia's economic growth become more balanced, with productivity growth in both tradeable and non-tradeable sectors contributing equally, the growth dividend is roughly about half, owing to more modest improvements in the terms of trade of Australia," it says.
This article doesn't quite explain what this means for the US... that Australia is now more heavily invested in Asian countries than in the US. Proving once again that the US has lost its "Engine of the world" role... and President Obama seems content that this should be so...
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