Has Australia's Luck Run Out?

They call it the “Lucky Country.” And for good reason. Australia hasn’t experienced an economic recession in almost three decades. But as the nation’s central bank governor warned last week, the economy has “slowed sharply since the middle of last year.” Already, airlines are feeling it.

In May, Virgin Australia, with heavy domestic exposure, warned investors about weakening demand for both business and leisure travel. Its much larger rival Qantas was more upbeat, citing strength in commodity sector demand. But it did speak of “increased softness” from other corporate sectors, including finance, telecom, and construction. It flagged a slowdown in small business travel as well.

Later this month both Qantas and Virgin will present their latest financial results covering their fiscal years that ended in June. And stakeholders are bracing for what could be an even gloomier assessment of demand. Since their May updates, prices for Australia’s largest export—the iron ore used to make steel—have plummeted. Also down are prices for Australia’s second-largest export: Coal. The country was a chief provider of both commodities to China, fueling its factories and facilitating its rise from economic backwater to the world’s second-largest economy. This year, however, amid a trade war with the U.S., the Chinese economy has slowed considerably, adversely affecting Australia’s economy in the process.

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