Assessing Australia’s Declining Economic Growth: Guest post from Hannah McKale
I’ve been given the following guest post by Hannah McKale. Please discuss, remembering that the usual standards of courtesy and civilised discussion apply with extra emphasis for guest posters – JQ
The effects of the global economic crisis have been wide reaching and dramatic, having an impact on almost all industries, stocks, and housing prices in most developed nations. The fall of Lehman Brothers in September of 2008 was a predominant trigger of economic catastrophe, as it was a sign of just how tumultuous things had gotten in the financial markets. While it would take a degree from any of a number of political science schools to fully grasp the full range and depth of the economic crisis, it is easy to see that the tightening of credit markets, plummeting housing prices, and unprecedented uncertainty in the financial markets started on that cold day in September. As it spread around the world at a fast pace, it was clear that the economies of major developed nations are all intertwined and exert an enormous amount of influence on each other. By May of 2009, twenty-nine of the thirty OECD (Organization for Economic Co-operation and Development) nations were officially experiencing a recession, defined by two straight quarters of financial decline and negative growth. The 1 country that did not enter into a recession, and is experiencing growth at faster levels than all of the other OECD nations, is Australia. While Australia has experienced declines in certain areas of their economy, most notably during the December quarter of 2009, they immediately bounced back in the next quarter, (March 2010), holding off a full recession at a time when all of their economic peers were in the midst of one. It is worth asking the question: how is Australia remaining economically strong at a time of such widespread economic weakness and uncertainty?
Much of its solvency can be attributed to Australia’s ample mineral resources coupled with a lucrative trading partnership with China. While also in the midst of a recession, China’s manufacturing sector is growing at a break-neck pace, though it has slowed in recent months to a growth rate of 10.6%, down from a first quarter growth rate of 11.9%. However, growth statistics like these are enough to make US investors salivate, as US manufacturing output has been growing at a much slower rate of between 3 and 5% for the past 16 months. Australia is the number 1 exporter of iron ore to China, which translates to billions of dollars in revenue and hundreds of thousands of jobs. Australia took a proactive step against the initial financial crisis before it even hit their shores by passing a $42 billion stimulus package dubbed the Nation Building and Jobs Plan. This plan mandated that the money be used for road and rail maintenance projects, updating schools and technologically equipping them for the 21st century, and maintaining social housing projects. Before the Nations Building and Jobs Plan was passed, Australia’s GDP declined sharply by 5.88% in the 2008-09 fiscal year. The passage of this stimulus helped to raise Australia’s GDP by 2 ¾ percent in the 2009-10 fiscal year and looks to have been instrumental in another 1 ½ percent raise in 2010-11. Thus, Australia actually added 210,000 jobs when most nations were losing theirs by the millions.
Australia’s highly centralized and regulated banking system has allowed them to weather the financial storm better than most of their peers. While the US was drowning in un-paid foreclosures, causing housing prices to plummet and household wealth to suffer as a result, Australia was treading water nicely, having not given out risky loans to non-credit worthy applicants. Their reliance on social housing programs, which are almost unheard of on a grand scale in the US, also anchored Australians in a base of financial security. Overall, Australia has weathered the economic crisis better than any other country in the world. While its trading partners have borne the brunt of the financial calamity, Australia’s resources have remained at high demand throughout. It will be interesting to see how Australia responds as other nations crawl out of their economic stagnation and become solvent once again.
Hannah McKale recently received her Masters in Political Science, and is currently seeking a Ph.d program. McKale focuses much of her writing on the international political economy.