China’s Building Boom Splits Australia Into Two-Speed Economy

A twin-speed economy is developing in Australia and posing a challenge for the central bank, as Chinese demand for iron ore buoys the resource-rich west while eastern states struggle with Covid-19 outbreaks and border closures.

The diverging fortunes of east and west are reminiscent of conditions created by the mining boom a decade ago, and are playing out in Australia’s property market.

“Our market’s quite hot,” said Bev Haymans, a real estate agent in the upmarket coastal suburb of Cottesloe in Western Australia’s state capital of Perth. “There’s a real sense of positivity.”

Meanwhile, 3,300 kilometers (2,050 miles) to the east in Sydney’s beachside suburb of Bronte, Hannan Bouskila is struggling. April’s coronavirus lockdown was “very tough” for the housing market, the 17-year veteran of the real-estate industry said, and the renewed outbreak in neighboring Victoria state has made everyone nervous again.

The divergence poses a challenge for Reserve Bank of Australia chief Philip Lowe as he seeks to tackle spiraling unemployment and the economy sinking into its first recession in nearly 30 years.

The central bank cut its benchmark interest rate to a record low of 0.25% in March and is expected to keep it there Tuesday to support the economy. Data the following day is expected to show the country officially fell into recession in the second quarter, with economists predicting a 6% contraction from the previous quarter.