The Olympic flame may have been extinguished, but the Australian economy is burning bright.

       No post-Summer Games economic blashs are in sight. Restaurants are packed. Retailers are ringing up sales, and corporate profits are climbing. The economy is notching up its 10^th consecutive year or growth, the longest period of expansion since World War II. And while the pace will slow this year from last, the economy is moving at a healthy clip.

       Inflation, meantime, appears to be in check, despite a swoon in the Australian dollar that is boosting the price of imports. But the weaker currency is fueling exports, and setting the scene for a post-Olympics tourism bonanza from international visitors.

       “It’s a very positive outlook,” says Glenn Maguire, an economist at Societe Generale in Sydney. “The key risk” to the rosy scenario; he adds, is if signs of inflation start to emerge and the country’s central bank opts to slow the economy by raising interest rates.

       The central bank has lifted its key official cash rate five times since last November, from 4.75% to 6.25% currently.

       Australians still are digesting an overhaul of the tax system whose centerpiece was the July 1 introduction of a 10% levy on goods and services that replaces a raft of wholesale charges. The tax package distorted spending patterns as consumers rushed to buy big ticket items like houses a head of the new tax, and deferred other purchases such as cars hoping prices would fall.

       As part of the overhaul, personal taxes were cut, and that is expected to underpin consumer spending in the months ahead. What’s more, the outlook for jobs is relatively, and higher asset prices such as stocks and houses have made consumers feel wealthier. Still surveys of consumer sentiment are beginning to show signs of nervousness mostly over fears that interest rate will raise.

       The housing sector has begun to cool. But business investment, partly propelled by a recovery in exports, will take up the slack in driving the economy. Increasing competitive pressures are forcing Australian companies “to invest in new equipment, structures and processes to enhance both their productivity and profitability,” says Bill Shields, chief economist at Macquarie Bank Ltd.

       Meantime, wages are playing a key role in holding inflation at bay. The new goods-and-services tax is causing a spike in prices, but it isn’t likely to translate into demands for higher salaries. Mr. Shields puts that down to a combination of factors including weaker unions, a more flexible work-pool. For instance, a study of census data shows that between 1991 and 1996 more than 43% of Australia’s population – or 6.5 million people – changed their place of residence.

       Few people appear worried about Australia’s yawning deficit on the current account, in part because the country’s fundamental economic policies seem sound. For instance, the government just announced its budget was in surplus to the tune of A$12.7 billion (US$6.65 billion) for the fiscal year ended June 30, exceeding a May estimate of A$7.8 billion.

       With the Games declared a rip-roaring success, companies including Seven Network Ltd., which held the broadcast rights for the Olympics in Australia, are working hard to capitalize on them. The network enjoyed a ratings boost from the Games, and Kerry Stokes, Seven Network’s chairman, is hoping to maintain the momentum. Meantime, he thinks the new international awareness of all things Australian will make it easier for companies like his to export their wares.   

And he’s hoping that the high marks Australia earned for its staging of such a huge global event will “give confidence to the people involved in marketing Australia that they’ve never had before.”

Already, Joe Hockey, Australia’s minister for financial services and regulation who is pushing Australia as an international financial center, is planning to step up “the tempo of our offshore promotion of investment in Australia,” including trying to attract multinational companies to establish their Asian-Pacific head-quarters here. Mr. Hockey says, “The true benefits of the Olympics will be delivered over the next few months and years.”

AUSTRALIA BY THE NUMBERS

Source: Australian Bureau of Statistics: Reserve Bank of Australia; World Bank

Forecasts: HSBC Bank Australia Ltd.

Growth in real GDP

Consumer price index

Growth in credit to the private sector

Average prime interest rate

 Year-end exchange rate (A$/US$)

Trade

Forecasts: HSBC Bank Australia Ltd.

Forecasts: Macquarie Equities Ltd.

*90-day bank bill rate                      **90-day bank bill rate plus spread

Bonus Statistic: Australian athletes at the Sydney Olympics won a medal for every 326,000 Australian. By comparison, the top ranking U.S. team won a medal for every 2.8 million Americans.

Source: Australian Bureau of Statistics