Australia’s economy has been among the most resilient in the world. It has now been twenty-six years since the country experienced a recession – typically defined as two consecutive quarters of declining real GDP. When Australia reports its first quarter GDP results this Wednesday, that is not expected to change. Forecasters expect quarter over quarter growth of about 0.3%. But, economists have started growing cautious at slowing growth, figures potentially pointing to an inevitable recession.
Part of the reason for Australia’s consistent record is its huge reserves of natural resources – many of which are purchased by China. Reforms of the regulatory state and the tax code also likely has played a role.
Although the time has long since been forgotten by many, Australia’s economy was once teetering, until reforms beginning in 1983 helped right the ship. That year, the Australian dollar was allowed to float freely in currency markets, tariffs were lowered, and markets were deregulated.
The only other country to have a longer streak of growth in the modern era is the Netherlands, with a 26 year streak. Even so, some signs are Australia are worrisome. Housing prices have been rising at unsustainable rates, prompting monetary tightening by the Central Bank. Consumer debt, at 187% of GDP, has also been rising.
Perhaps most worrisome is the reliance of the Australian economy on China. China has become a key player in the global economy and any slowdown there would affect global growth. But, should China stop, even temporarily, buying Australia’s iron ore or energy production, Australia could face a severe economic contraction. The government, recognizing this, has instituted policies to shift the economy from mining to services. It is still too soon to know if those efforts will prove successful.
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