Why Australia Hasn't Had A Recession In Decades

America's economy is approaching a big milestone. If it keeps humming until July 2019, it will be the longest expansion in U.S. history. It would be exactly one decade and one month old by then. But there's another country with an even more impressive run It's even called the 'lucky country' Three big lessons from Australia. Be smart. Be organized. Be lucky. So if I've got any advice for other countries, it's try and be as lucky as Australia That luck has to do with Australia's treasure trove of natural resources. You know Australia is on the other side of the world and sitting on tremendously valuable minerals right at the point where the Chinese economy is just around the corner and exploding. Australia and all its natural resources were in the right geographic neighborhood just as the Chinese economy started to take off. And it just so happens that China did a big fiscal stimulus in 2008 and spent a great deal of money building new cities. So all of those resources were drawn from places like Australia. So that also served as a huge tailwind at a time when developed markets were in a whole lot of trouble. The year 2008 was a time of economic turmoil The Global Financial Crisis hit and markets crumbled around the world. But as it turns out this was also a year for Australia's economic management to really show off At the time the government had a very helpful and very low level of debt. One reason? Pension reform in the 1990s. Australia set up a compulsory retirement system called the superannuation system. It requires employers put money into its employees' retirement savings Since companies and citizens have to build up retirement savings, some of the financial burden to pay off pensions was taken off of Australia's government As other economies reeled in the wake of the 2008 crisis, the Australian Government was then able to put money directly into people's bank accounts This boosted consumer spending in order to stimulate growth In 2008, the Australian Government unlike some other developed market governments actually jumped in very quickly with fiscal stimulus, so that helped to kind of minimize the effect of the crisis The country's numbers continued to look sluggish after the financial crisis. But they never quite dipped low enough or for long enough to meet the definition of a recession. It takes two quarters of negative growth to fall into a recession. Australia's economy did post a few negative quarters since 2008, but no country's perfect. Overall Australia's economy has been managed pretty well in recent years partly because of a strong and stable central bank. Australia has an independent central bank and it's a very well-run central bank. It also has a floating exchange rate and the exchange rate helped it adjust to international shocks. Australia's economic reforms gave it flexibility in times of hardship. For example, floating the Australian dollar In 1983, Australia's government moved the dollar onto a floating exchange rate This meant that the dollar would be valued by supply and demand instead of being subject to influence from its government or its central bank It allows the economy to react to shocks as well Typically when an economy is hit by some sort of negative shock. The currency will adjust. It will depreciate and that helps promote exports. So it really serves as a buffer. Another reason behind Australia's economic track record lies in its immigration policy Since the late 1990s, Australia has seen growth in temporary migration, many arriving to the country on student or temporary work visas The number of temporary migrants peaked in the year 2000 However a recent change to immigration law in 2018 gave visa applicants more hurdles to get through if they wanted to come to the country Even when our GDP per capita average incomes aren't rising by much because the number of people continues to rise that means the total GDP continues to rise at even more rapid pace Part of that's underpinned by much faster population growth Most experts think Australia's economy remains strong in 2019, but it's not without risks Australia's suffering at the moment from pretty weak wage growth. That's worrying a lot of people. There's a lot of fear right now that China is hitting a wall. That will hit demand for Australian products. The good news is to the extent that the Chinese are buying commodities hopefully will find buyers from overseas for many of those commodities if the Chinese are not there The bad news is the rest of the world economy is not doing that well. For Australia to do really well the rest of the world has to do well

Channel: CNBC

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Keywords: CNBC, business news, finance stock, stock market, news channel, news station, breaking news, us news, world news, cable, cable news, finance news, money, money tips, financial news, Stock market news, stocks, is recession coming, when next recession, recession, recession meaning, best global economy, australia vs. india, india's economy

Id: EhQ1xb7_bdw

Length: 4min 54sec (294 seconds)

Published: Fri Feb 08 2019