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Australia like many countries was not involved in creating the current Global Financial Crisis (GFC). Being part of the global financial system, and a large trading nation, Australia found itself caught up in this crisis in the same way as countries in the Asian area were, drawn into the crisis after it was established in the USA and Europe.

The economic fundamentals in Australia at the time the crisis hit were excellent. Australia was experiencing a mining boom and near full employment. Also the high interest rates experienced as a result of boom conditions are now allowing plenty of room for Australia's economic managers to adjust to new economic conditions. The Federal and all six State Governments had no borrowings and all operated on surpluses. As well, a large sovereign fund had been created by the former government. Exports and imports were powering upwards. Some improvement was being achieved on Australia's international balance of payments which, although large, was well contained. The Australian Stock Exchange (ASX) prices were, in general, of fair value. Businesses were operating well and our banking system was, and is, strong and well regulated. Regulation in many advanced economies 'plays catch up' and their regulators either lack the money or the will to enforce it, which is mostly not the case with Australia's banking regulators. Australian banks were not involved in subprime debt. Australia's economy was efficient with good fundamentals.

When the crisis hit the USA and Europe, every day brought bad news. The crisis started to unfold at an alarming rate. The lowest point seems to have been reached on the weekend of 14th September, 2008 with disastrous news from Lehman Brothers, Insurance America Group (IAG) and others.

At this early stage of the crisis in Australia, fear, the crisis of confidence and the freezing of credit from overseas, dominated. World leaders including Australia's own acted promptly and at this point, their actions would seem to be working. The Reserve Bank of Australia has borrowed some $US20 billion from the Federal Reserve in the US. Interest rate reductions have been made by the Reserve Bank and the Federal Government has undertaken stimulus packages, infrastructure spending of $22 billion over the next four years, and taxation incentives on a scale not undertaken previously. Unemployment is on the rise in Australia and has now climbed to 5.7 percent and estimated to peak next year at about 8.5 percent. Incomes are falling as people work less overtime, contractors are cut back, and workers are retrenched.

Whilst some twenty-three countries in the world are in recession or depression, Australia has managed to avoid recession at this stage. It was thought that Australia may be in recession in the March, 2009 quarter but trade data recently released unexpectedly showed the best balance of payments figures in 50 years. A few days later the National Accounts figures reported that the economy grew at 0.4 percent for the March, 2009 quarter. Some authorities say avoiding a recession so far is an aberration and that Australia is likely to slip into recession later this year. Whilst economics is not a science, there are at least two things we can be sure of: first, the world will get through the GFC and prosper again and second, the stock market sees 'the light at the end of the tunnel' before the general economy. World stock exchanges have lifted substantially since March, 2009. This rebound may be built around the absence of more bad news. However we are getting a lot of conflicting data at the moment which is consistent with a bottoming economy.

The ASX is up by over 25 percent from its lowest point - an encouraging sign. The question is, are we in a bull market or is it a 'dead cat bounce' within a bear market? Economic history tells us that since World War II each recession has had at least two 'dead cat bounces' before a bull market has emerged. In the current situation if it is a 'dead cat bounce' then Australia is in its second bounce. This is the dominant question now for investors. No one knows the answer to this question. Emerging good news from the US is evidence that the world economic Armageddon has been averted as Goldman Sachs, J P Morgan and eight other banks have offered to repay $US68 billion ($AUD83 billion) to the US Treasury lent under the “Troubled Asset Relief Program” (TARP). Whether the US economy starts to recover is critical and whether China avoids recession and powers along are the key drivers to improve confidence and business investment.

Australian mining companies in general are still trading on highly priced boom condition contracts. However it is believed the new contracts presently being negotiated will have prices at least thirty percent lower. This will have some flow on effect to the Australian economy.

Retail sales are up on previous years no doubt helped by the government's stimulus package. Consumer confidence is also in good shape. The Westpac- Melbourne Institute Consumer Index is up 13 percentage points - its biggest increase in 22 years. But with unemployment rising, will consumer confidence and retail sales collapse?

On the other hand population growth is strong. This leads us to the question of what the future holds for Australia? Are we seeing the first signs of green shoots or are we trailing the Atlantic countries? Let us examine this question. Australia is still 'the Lucky Country' coined some forty years ago by writer Donald Horne. The meaning of this phrase, then, as now, is based on these interesting facts: that Australia has more known minerals in the ground than any other country, it is an exporter of energy, it has great farming lands, it is a very large country slightly bigger than the USA and from east to west (Sydney to Perth) is a greater distance than from London to Moscow.

It also has a harsh but generally good climate, is blessed with a peaceful democracy and is well respected in the world of nations, with a well educated people. But now in the GFC Australia can add more pluses to 'the Lucky Country' tag. Australia happens to be in the part of the world which is faring best in the GFC namely the Asian region where growth, and Australia's biggest customers reside.

The ramifications of the GFC hit manufacturing economies hardest whereas Australia is big in raw material exports many of which are a necessity of life regardless of the GFC. An exception is China which swung export manufactured products to domestic consumption. Furthermore the subprime disease did not spread to Australia. No Australian banks have failed. In fact in a survey of the ten strongest banks in the world, Australia has four. In going into the GFC Australia's economic credentials had a triple 'A' rating.

While all this is very nice, Australia like any other country must be very careful. We are living in very difficult times.

We should consider the following:

• Is the GFC likely to get worse and how would that affect Australia?

• Is China's economic situation stabilised? • What is the impact of large reductions in mineral pricing?

• When the effects of the stimulus packages end what will the consequences be? Will the general economy be strong enough to take over, or will there be new stimulus packages (the government getting deeper in the red) or will the planned massive infrastructure spending 'kick in'?

• How well will the confidence factor and retail sales stack up when unemployment is anticipated to increase, or some other unforeseen economic event happens?

The important question for Austraila is how much the world recession is knocking us about. Ross Gittins of The Sydney Morning Herald suggests: 'it's mixed but there's worse to come'. We indeed live in interesting economic times.