Australia's Mining Boom Covers Troubles Elsewhere

The only thing holding up the country is an industry despised by the leftists in power who want to shut it down with carbon taxes. Amusing.

Australia's economy, driven by a booming mining sector, is among the fastest-growing in the developed world. It has the enviable combination of low unemployment and little debt.

Yet its central bank has cut interest rates. The reason: Nearly every part of the economy outside mining is struggling, and there is fear among some small businesses and economists that if China stops gobbling up its coal and iron ore, the remainder of the economy would be too weak to pick up the slack.

The central bank is hoping to give the rest of the economy a boost. Since November, the Reserve Bank of Australia has cut rates by 1.25 percentage points to 3.5%, even as first-quarter gross domestic product grew 4.3%, its quickest pace in more than four years.

The risk is that Australia will become so dependent on mining that weakened demand could lead to recession. Mining accounts for about 7% of the economy, nearly double its share in 2000, official figures show.

"The tipping point is once large projects start to be postponed," said Andy Xie, an independent Shanghai-based economist and adviser to several Chinese banks.