The effects of Australia’s stimulus are slowing, unemployment is on the rise and the Central Bank is considering higher rates. But there are some positive happenings in the country that signal a gradual healing in the economy and exchange traded fund (ETF).

  • Australian business confidence increased 8 points to 18, its highest level in almost six years, reports Jacob Greber for Bloomberg. The rise in the sentiment index could prompt Glenn Stevens, Reserve Bank Governor, to raise interest rates from its current “emergency level.”
  • The country’s GDP grew more than expected in the second quarter, by 0.6%, outperforming most other developed markets. Many now believe that Australia’s central bank will be among the first to raise rates as a result of this growth.
  • Expenditures on machinery and equipment rose by 0.5% in the second quarter.
  • Household spending also rose by 0.5% in the second quarter.

On the downside, however, Australia’s unemployment rate remained a seasonally adjusted 5.8% in August from July, but the economy lost 27,100 jobs, higher than the expected 15,000, writes James Glynn for The Wall Street Journal.

The Reserve Bank of Australia won’t necessarily wait for a peak in unemployment before raising interest rates. There are already murmurs of raising rates to 3.25% from 3.00%, while others still believe it will take better job employment numbers to goad the Central Bank into raising rates.

If the Central Bank raises borrowing costs and unemployment continues to climb, the economy’s expansion could begin to slow.

Retail sales and housing finance both fell, increasing concern over the waning impact of the government’s stimulus plans. However, the government still backs its $19 billion in stimulus spending as a way to support jobs during a weaker economy, writes Jacob Greber for Bloomberg.

  • iShares MSCI Australia Index (NYSEArca: EWA): up 53.7% year-to-date

ETF EWA

For more information on Australia, visit our Australia category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.