Stock prices are stumbling, house sales have slowed, and banks are avoiding high-risk loans. As the Federal Reserve continues to raise interest rates, the sugar rush from President Donald Trump’s exceptional dose of fiscal stimulus is likely to wear off. At the same time, due to the trade war, Brexit, and issues in a number of emerging-market economies, global growth is slowing. Two-thirds of business economists believe the next recession will begin in 2021, and half of corporate chief financial officers believe it will start the next year.
Recession appears to be unavoidable, and history suggests it is. The tides come in and go out. The sun rises and sets every day. The economy grows for about a decade before contracting. Using Australia as a model, however, this may not be the case. The country’s current expansion is approaching 30 years, making it the longest in modern history, prompting critics to label Australia a “superpower.” “The “envy of the developed world,” the “miracle economy,” and the “wonder down under.”
At least some of Australia’s seemingly perpetual expansion is due to luck, idiosyncrasy, and chance: where the country is on the map, what its neighbors’ budgets have looked like, and what mineral deposits happen to be beneath it. However, it is also due to sound and intentional government policy, which means that the Australian success story may be applied to other countries around the world, including the United States.
“Will good policy always come out on top? “Clearly, the answer is no,” says Stephen Grenville, a Sydney-based nonresident fellow at the Lowy Institute and a former Reserve Bank of Australia official. “We can’t count on another 27 years of growth, and we can’t claim that since we haven’t had a recession in 27 years, we know how to expand without one. But the 27 years indicate that if policy is done correctly, you can be hit by a variety of shocks, both positive and bad, and still maintain stable development.”
What does it imply? “What does “getting policy right” entail? The first lesson is to fight recessions correctly. Australian policymakers fared better than those in the United States and Europe in combating the global financial crisis of 2008, enacting fiscal stimulus immediately and avoiding budget restraint as the economy recovered. As a result, Australia’s growth rate fell without the economy collapsing, much less contracting and then stagnating, or contracting for years on end, or contracting repeatedly.
Republicans in Congress began pushing for budget cutbacks just months after the recession ended. European governments began cutting spending as well, imposing tight austerity on the continent’s debt-ridden periphery. Australia, on the other hand, lavished helicopter money on low-income families, spent lavishly on infrastructure, and debated budget balance without ever actually doing so.
Addendum to lesson one: Don’t get yourself into this problem in the first place. Because Australia dodged the subprime loan boom, its people were not as overextended with debt and its financial institutions were not as deeply invested in exotica as those in the United States, the country had an easier time combating the recession. “According to John Romalis, an economist at the University of Sydney, “the financial system in Australia is substantially different.” “It’s tedious. It’s largely involved in routine financial matters, which eliminates one source of trouble, as not being overly exposed to risk is a good thing.”
The second lesson is to welcome newcomers. More than a quarter of Australians were born outside of the country, which is more than twice the rate in the United States or France. In recent years, the country’s population has increased at twice the rate of the United States. Given that Australia’s immigrant population is younger than its native-born population, the country’s economic outlook has improved, government coffers have been bolstered, the working-age population has been extended, and the median age has been lowered. They’ve also helped it pull itself out of recession-free ruts. (The economic math is simple: more people equals more investment and consumption, which equals a lower risk of a slump.)
Lesson three: Let yourself be open to the world. Australia has profited from its location in a fast developing region, which includes Vietnam, Indonesia, the Philippines, and, most notably, China. Their economic development has driven Australia’s, with the higher-income economy selling commodities, as well as other goods and services, to the lower-income countries. In the 2000s, bilateral trade between China and Australia rose tenfold, with Australia’s exports to China increasing and China investing heavily in Australia as well.
“The Committee for Economic Development of Australia’s head economist, Jarrod Ball, argues that “openness to trade and investment has been a big element of our growth story.” “We have continued to push and negotiate free-trade accords while protectionism has made a resurgence. We just cannot afford to do anything else in Australia, given our economy, size, and geographical location. We must be willing to engage in commerce and investment. We simply cannot afford to lose that transparency.”
None of this implies that the country has completely overcome the business cycle; in fact, due to a correction in the housing market, some experts predict a soft patch, if not a recession, ahead. It also doesn’t imply that Australia’s economy has been trouble-free for the past three decades. For example, wages have remained unchanged. However, it does show that recessions are always caused by somethingoften something that policymakers can combat. It also shows that wise governance is mainly, if not entirely, determinative of a country’s growth path, with recessions generally being the result of human imperfection rather than fate.
Whenever America’s next recession hitswhether next year, three years from now, or ten years from nowthere will almost certainly be a means to mitigate or prevent it, as well as a best approach to combat it. Perhaps borrowing some Canberra bureaucrats would be a good start here in Washington.
In 2008, how did Australia avert a recession?
The Reserve Bank of Australia increased a lending facility for banks to A$200 billion ($147 billion) on Tuesday to assist keep borrowers’ interest rates low and credit flowing. The board “continues to evaluate how further monetary measures could boost the recovery,” according to Governor Philip Lowe.
How did Australia avoid a recession during the Global Financial Crisis?
If an economy has seen negative growth for two quarters in a row, it is said to be in recession. During the global financial crisis of 2008, Australia was the only major economy to avoid a recession, owing to Chinese demand for its natural resources.
Why is Australia immune to recession?
In the developed world, Australia has a unique economic history. While all other developed countries have experienced some form of economic crisis in recent years, Australia has remained recession-free for the past 25 years! This is a sort of record in terms of a developed economy’s continuous growth over such a lengthy period of time.
A recession is defined by the international community as two consecutive quarters of negative growth in an economy. Australia has only seen one period of negative growth in almost a century, fueling doubts about its invincibility.
This sparked a slew of different theories. Some argue that because Australia’s economy is based on agriculture and other natural resources, the country will not experience a recession because these industries are recession-resistant. Others believe that because the recession has not occurred in such a long time, it will occur at any time. The future of Australia’s economy appears to be extremely different depending on whatever point of view one holds.
Chinas Supplier
The Australian economic structure has changed dramatically during the last few decades. Agriculture used to be the backbone of Australia’s economy. Australia was a place where pardoned convicts suddenly owned vast swaths of arable land. This was before Western Australia’s mining boom. Australians soon discovered a wealth of minerals hidden deep beneath their feet. They also discovered that these minerals are in high demand in China, which is experiencing the century’s largest construction boom.
The Australian economy exploded as a result of China’s voracious desire for resources. The modern Australian economy is heavily reliant on China, with the latter accounting for 35% of all Australian exports!
The End of the Mining Boom
Because of China’s strong economic backing, Australia was able to weather the 2008 storm without severe problems. While the rest of the world was reeling, China enacted a stimulus program to keep its economy humming. The Australian economy, which was a key trading partner with China, suffered as a result of this.
However, it appears that the Chinese economy has been in a slump since 2015. As a result, Australia’s formerly impregnable economy now appears to be severely defective. Experts anticipate that Australia will have a recession in 2017 or 2018. To get out of a slump, China is used to digging things up and selling them. However, buyers may be hard to come by this time. The consequences have already been seen in falling commodity prices, causing economists to maintain their pessimistic view for Australia’s economy.
Property Bubble
The housing market in Australia is also in the midst of a gigantic bubble. Many analysts argue that property values in large cities like Sydney have reached an unsustainable level. They say that, with the noteworthy exception of Hong Kong, Sydney is the most inflated real estate market. The surge of foreign investors has also contributed to the creation of this property bubble. Chinese money has entered the Australian property markets, driving up home prices to the point where locals can no longer afford to buy them. This overheated market could also be headed for a 40% drop. This would be a major setback for Australia’s economy, as housing is the country’s third-largest employer after agriculture and mining.
Deregulation
To make problems worse, Australia’s central bank has been gradually deregulating the market. This means that critical indicators like the exchange rate are outside the control of governments. This is beneficial to the economy in normal conditions. The Australian economy, on the other hand, has no protection from market attacks. When commerce with China slows, Australia could be vulnerable to Forex traders. They have the potential to depreciate the Australian dollar if the government does not intervene. Powerful investors such as George Soros have a pessimistic view of the Australian markets and are attempting to profit from it.
Credit Binge and Aging Workforce
The working population of Australia, which is the country’s last line of defense, is also under duress. To begin with, ostentatious consumption has become the norm. The Australian people have become the world’s most indebted population. Within the last 50 years, their household debt has climbed from 25% to 125 percent of GDP. This implies there’s no way they’ll be able to borrow additional money to support a longer period of consumption, which would boost growth. In fact, as soon as the outlook becomes bleak, they are likely to reduce consumption, potentially setting off a downward spiral.
Australia, too, has a major demographic issue. Every hour, roughly 800 people leave the workplace, while only a small number of people get hired. Indeed, with rising automation and fewer people around, finding work has become increasingly difficult. As a result, Australia now has 3.4 workers per retiree, compared to 7.7 five decades ago. This figure is anticipated to fall even lower. As a result, the Australian government will suffer a budget deficit as long as taxes are not raised.
When all of these issues are considered together, the Australian economy faces a severe task. The recession-proof economy may be put to the test very soon, and a catastrophic recession appears to be on the cards for Australia unless the government has a backup plan in place.
Is Australia set to enter a recession in 2020?
The pandemic and “radical” government response, according to Commonwealth Bank analyst Gareth Aird, will make 2020 “the most unique year in the history of the Australian economy.”
“The government’s economic actions were extreme, and the policy response was unprecedented,” he said.
“In many respects, an experiment was done in real time, and the findings pleasantly surprised everyone.”
While Australia’s economy declined by 1.1 percent overall in 2020, following its first recession in over 30 years and the sharpest quarterly GDP drop in history, the second half of the year set new milestones.
How stable is Australia’s economy right now?
Australia’s GDP growth rate is predicted to return to 3.5 percent in 2021, after falling to 2.4 percent in 2020, according to the International Monetary Fund. Our GDP is expected to expand to 4.1 percent in 2022, according to the IMF, as the economy and international borders reopen. Australia’s financial situation is stable.
What happens in Australia during the recession?
When the economy of a country suffers a downturn, it is referred to as a recession. Economists can’t call it a recession if the Australian stock market has one poor day the country’s gross domestic product (GDP) must decline for two consecutive quarters.
How did Australia react to the global economic downturn?
The $US612 billion fall of Lehman Brothers was the single largest bankruptcy in US history. Global financial markets panicked, global capital flows essentially halted within 24 hours, and the world teetered on the verge of collapse for the next month. As we entered not only the Global Financial Crisis, but also the “great global recession” that followed, these were nerve-wracking days. These were the events that would shape our country’s whole history.
We successfully negotiated the GFC in Australia without losing a single financial institution although coming perilously close in a number of instances and without a single citizen losing their savings deposits. We also were the only major industrialized economy to emerge unhurt from the global financial crisis.
And, despite a deluge of opportunistic conservative political commentary, we did so with among the lowest debt-to-GDP and deficit-to-GDP ratios in the Organization for Economic Cooperation and Development, as evidenced by the fact that Australia maintained AAA credit ratings with all three global rating agencies throughout the GFC, the global recession, and the years that followed. All of this did not happen by chance. It necessitated meticulous financial and economic planning.
We had been working on contingency measures in Australia with the Treasury for the preceding six months, beginning just before Bear Stearns was bailed out in March of that year. By May, the Council of Economic Regulators which includes the Treasury, the Reserve Bank of Australia, the Australian Prudential Regulation Authority, and the Australian Securities and Investments Commission had developed an internal “Memorandum of Understanding on Financial Distress Management,” our own contingency plan for dealing with any Australian financial institution in trouble.
We were particularly concerned about the safety of people’s bank deposits, considering that Australia was one of the few countries without such a program. That’s why, in June 2008, we revealed that we had also accepted the Council of Economic Regulators’ advice to implement a system to protect the first $20,000 in individual savings, which had previously been rejected by the Howard administration.
Is Australia experiencing a downturn?
In the June quarter, the Australian economy increased by 0.7 percent, slowing from the months before the Delta strain swept wildly throughout New South Wales and Victoria.
The figure, reported on Wednesday by the Australian Bureau of Statistics, implies Australia has escaped a technical recession for the time being, ahead of a significant contraction in the September quarter owing to lockdowns in its two most populous states.
Is Australia on the verge of a recession?
Australia’s golden era has come to an end. The country went into its first recession since 1991 in 2020, and only very high growth in the fourth quarter of 2021 will likely keep it from going into another. Even a substantial rebound in 2021 will not be enough to disguise the country’s significant economic problems.