Sunday, August 18, 2013

'Post' Recession Blues: Not for Australia ... Yet

Australia has fared well since the global financial crisis, especially in comparison with a lot of countries which have still not returned to their pre-crisis GDP peaks of 2007-08.  Greece, for example, is not suffering a recession, it's a fully fledged depression, which is bound to cause long-term damage to Greece's polity, society and economy.

While Australians seem to be angry about politics and the economy, it's good that we still need to debate why this is the case, given that Australia has not even had a recession since 2007-08. Indeed, we haven't had one for 22 years. In Greece and other countries still in the midst of depression, there's no real doubt as to why people are unhappy.

The following graphic doesn't include Australia, but if it did we would be at the top of the table, not at the bottom, but reading the Murdoch press you would think that we were worse off than Greece or Slovenia.

According to RBA Governor Glenn Stevens
Over the past five years, the economy has expanded by about 13 per cent ... Korea has recorded growth about the same as Australia's (13 per cent), Singapore more (about 18 per cent). And of course China's growth over this period has, despite frequent talk to the contrary, been rather stellar. Chinese GDP has risen by over 50 per cent since early 2008.
While debate continues about whether Australia's relatively excellent economic performance is primarily due to Chinese luck rather than good policy, Stevens argues that the crisis came at the right time for Australia.
… we were ‘lucky’ that the effects of the global economic downturn worked to help reduce inflation in Australia from its peak in 2008 of 5 per cent – which was way too high – to something acceptable. It could also be said that we were fortunate that the sub-prime crisis in the US emerged from early 2007, and not later. Although such lending was less prominent in Australia at that time, it was growing fast and would have become a much bigger vulnerability had it continued at that pace. The fact that things went wrong in the US when they did meant that what was a small problem here stayed small. It could be added that we were lucky that the change in behaviour of households – slower borrowing, more saving – came when it did. For a start, had households continued as they were, they would have become more financially extended, and it is obvious now that that would have been risky. Moreover, this changed behaviour of households has helped us absorb the resources investment boom.
I would argue that Australia's success is due to a fortuitous confirmation of good luck and good policy, but don't expect the ideological warriors of the right, ably led by The Australian, to concede that the Rudd and Gillard governments have done anything right at all economically or otherwise.

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