SYDNEY – Australia has been clinging to its prolific mining industry in a bid to swerve a possible recession tipped by alarming GDP data, the likes of which it managed to weather back in 2008. Will it be able to pull off the same feat again?
Australia’s economy has been expanding for more than 27 years but grew by just 1.4 percent in the last fiscal year, which ended on June 30 – its lowest in a decade.
A decade ago, the rest of the world was suffering from the shock of the financial crisis. The Oceanic nation managed to bypass the chaos thanks to a mining boom and stimulus measures adopted by Canberra.
The country’s economy grew by 2.7 percent in 2018 and has not experienced a period of recession since the 1990s. Experts believe that it will stay on this course, despite modern-day economic threats like Brexit and the China-US trade dispute.
“Those who think we are going to enter in recession are mistaken,” economist Tim Harcourt from the University of New South Wales told EFE, stressing that in his view, “the strength of the economy was its exports,” especially to China.
Australia recorded a current account surplus of AU$5.9 billion ($4.02 billion) in the last quarter.
One of the largest exporters of natural resources, Australia’s coffers have been fattened by an increase in the price of minerals, such as iron, which soared after the spill in January of Brazilian mining firm Vale in Brumadinho.
“Prices of raw materials are high and that’s good,” Harcourt said, though he underlined the problem was that much of the benefits of having good trade balances were not translating to wage rates, which he saw as a weakness.
Nevertheless, Harcourt believed that Australia was better off than other OECD (Organization for Economic Co-operation and Development) economies, although the all-time record of Australian GDP growth was low, particularly per capita growth.
The government says Australia has continued to weather the onslaught of global economic instability, which saw the International Monetary Fund and the OECD lower their growth forecasts while the United Kingdom, Sweden, Singapore and other nations have recorded a contraction in the June quarter this year.
The situation is made more complicated by the trade war between the US and China, and the risk posed by Brexit.
According to Harcourt, so long as trade borders remain open, Australia will be safe owing to China’s dependence on its food products and the country’s raw materials – such as coal – for energy production.
The liberal-national coalition, which has been in power since 2013, says income tax cuts approved in early July and reduction in interest rates to 1 percent will result in a rebound for the economy in the coming months.
To these measures, Treasurer Josh Frydenberg added the stabilization of the housing market, infrastructure spending and a more positive outlook for investments in the resource sector.
“The fundamentals of the Australian economy are strong. We have maintained our AAA credit rating. Employment growth at 2.6 per cent is more than twice the OECD average,” said Frydenberg.
The economist from the University of New South Wales, however, considered these measures insufficient.
According to him, the coalition lacked comprehensive economic policies, as Australia required more infrastructure spending, further economic stimulation, especially with improved wages, given that “our national income is the lowest since the Beatles came to Australia in 1964.”
The academic considered that the current administration would not implement measures similar to those launched by the former head of the Treasury office, Labour’s Wayne Swan (2007-13), who during the financial crisis gave roughly A$900 ($613) to about eight million taxpayers to stimulate local consumption.
“The advantage was that the other G20 economies coordinated their policies,” Harcourt said, adding that currently one of the problems was having “Donald Trump and Brexit” and that all Asia-Pacific leaders are not as consistent as they were 10 years ago to be able to coordinate their policies internationally.