An Unusual Recession but for Those Who Remember 1991 the Path Back is Tough
Australia’s economic near 30 year run of uninterrupted economic growth and tales of subsequent prosperity, have largely hinged on the idea of being a miracle economy.
The national economy contracted by 7% in the three months to June as Australia’s $1.5 trillion economy deals with major falls in consumption of retail, tourism and consumer sectors especially.
While the term, miracle economy, is largely a creation of outlets such as the Economist and the New York Times it is important to draw a true distinction between headlines about what the rest of the world can learn about Australia and the reality of that growth story.
For this writer who spent the best part of a decade at Bloomberg LP, the truth is somewhat more to do with luck than any great policy lever pulled by the Reserve Bank of Australia or indeed the Federal Government.
A mining construction boom, rapacious demand by China for Australian resources, decades long mass migration program and loosening of credit from the period 1994 through to 2012 have facilitated a 29-year boast which has been unravelled by the COVID-19 crisis we now confront. Australia has had three per-capita recessions in the last 30 years, which is a more telling statistic in terms of living standards, with the most recent data in the last decade being been underpinned by government spending on infrastructure.
Locally in Queensland, the economic performance leading into this crisis revealed a region with highest bankruptcies nationally and private sector investment running at decade lows.
Interestingly, although business creation, digital adopters and those businesses reshaping offerings to customers are prospering, it is still an incredibly difficult environment to navigate currently.
The challenge for the economy is ultimately how the nation’s business sector will pivot in the years ahead.
Forbes have provided a nice case study in businesses that have undertaken a rapid change to meet the toughest trading environment to confront.
Flexibility and adaptability will be themes many more businesses will embrace in the coming year.
The rate at which small businesses adapt will be the key driver of any rebound in the Australian economy and for those prepared to look into the future, the worst may yet be behind us.
HSBC Chief Economist, Paul Bloxham has forecast an improvement in the September quarter and a stronger December period leading in 2021 bounce back.
Mr Bloxham’s pedigree as a former RBA economist will most certainly tested in the next six months.