Image Credit: Phil Whitehouse
Australia is the wonder economy down under. The country has not suffered from a recession since1991, while the UK has spent an entire two years during the same time period in recession. A recession is generally defied as when a country’s Gross Domestic Product falls for two quarters or more in a row.
Australia has a resource rich economy; its biggest exports being gold, iron ore and coal, although manufacturing and financial services also form a significant part of Australia’s economy. Its reliance on resources has meant that there is always demand for Australian goods, but the economy is heavily affected by any change in commodity prices. The last few years however have proved testing for Australia’s economy, with it entering a prolonged period of spikes in its economic growth.
For three quarters in the last four years, growth has plummeted to below 0.25 per cent. From 2018 to 2019 Australia’s economy grew by 1.8 per cent, which is Australia’s smallest economic growth in a decade. GDP per person has continued to fall however, with Australia entering a so-called per capita recession. Australia’s Prime Minister, who has just been re-elected as its sixth Prime Minister in 12 years, has reiterated how he believes planned tax cuts will act as a boost to consumption and increase domestic demand within the Australian economy.
As well as political instability, Australia also fids itself and its economy caught between the world’s two largest economies and its largest and fourth largest trading partners, America and China. Australian treasurer, Frydenberg, recently stated that he doesn’t believe Australia needs to choose between America or China, however Australia increasingly fids itself in the middle of commercial arguments.
Recently there have been disagreements over the role of Chinese firm Huawei and its involvement in the roll-out of 5G. If Australia continues to side with America over the ban of Huawei in critical infrastructure, then it risks retaliatory actions from China. Furthermore, China’s economic slowdown has had an adverse effect on Australia. China is Australia’s largest export market by far and any reduction in demand from China will also hit Australia’s economy.
China forms over 30 per cent of Australian exports, Australia’s next largest export partner is Japan with just under 13 per cent of Australia’s exports. If China’s economic slowdown continues, then it could trigger Australia’s economy contracting and entering recession. Australia’s weak economic growth fits into a wider pattern of slowing global economic growth as fears over a US-China trade war undermine investor confidence.
Germany, America, India and Brazil are just a few G20 countries who have been warned of slower than expected growth. The IMF has cut its 2019 global growth forecast from 3.5 per cent to3.3 per cent due to this fall in business confidence. Whether Australia continues with its world record of continuous growth largely depends on the economic performance of other countries.
While experts warn that Australia’s growth has stagnated it has been resilient, and stayed in line with many OECD countries. The next few economic quarters will be crucial to Australia and to confidence within the Australian economy, regardless of these 28 years of growth being an impressive record.