The concern expressed in our last Australian Legal Update about the possibility of Australia following most of the rest of the developed world into recession fortunately proved unfounded. Australia has been a notable exception to the experience of many other countries in this respect.

One quarter of negative growth (Q4 2008) was not enough to drag the economy down, and the country rebounded with positive GDP growth throughout 2009, posting a year-on-year real increase of 0.5% (USA: -2.6%, UK: -5.1% and Germany: -5.1%). Of the leading economies, only China, India and Korea exceeded that growth. The strength of the Asian economies was Australia's salvation, as their continuing growth sustained demand for raw materials and kept mineral prices high.

With interest rates also kept high (controlling inflation at around 1.3%), the Australian dollar has also surged against world currencies, gaining against the US dollar (+32.8%), the Euro (+28.5%) and sterling (+20.1%) over the course of 2009.

With strong demand for our raw materials, unemployment has been held to 5.5% nationally (while it approaches 10% in the Eurozone and the UK), with the best figures (5.1%) belonging to the mining boom economy of Western Australia.

Other domestic activity seems to suggest that consumer confidence has not been substantially eroded by the global crisis. Christmas sales at the end of 2009 remained robust, while the demand for property maintained, and in some areas increased, property prices. The global credit shortage arising from banks needing to strengthen their balance sheets encouraged businesses to seek new equity, with rights' issues and other capital raisings booming in 2009, making it an active year on the Australian stock markets.

Australian banks continued to hold their credit ratings and post strong returns as others around the world tumbled, with National Australia Bank rumoured to be a contender for the "good" reconstituted Northern Rock bank in the UK.

This is therefore a good time for Australia to reappraise its standing in the international financial and business community. The recently released report of the Australian Financial Centre Forum stresses that Australia can leverage off its regulatory strengths (which helped its institutions weather the global crisis effectively), and its sophisticated funds management industry (the fourth largest in the world), to make it an attractive location for international banking and financial business. Following the release of the report, many business leaders have called for tax breaks for business to compete with Singapore and Hong Kong in the region, and the Henry Tax Review may be addressing this. It is to be hoped that the Federal Government will be able to meet this need, despite the demands on its budget of financing continuing economic recovery.

So we go into 2010 in better heart than at the beginning of 2009, but with continued concerns about the impact that any stalling in the recovery of world economies and markets could have on Australia. Cause for cautious optimism, perhaps.