What an impressive run isn’t it? Australia is considered to be the luckiest country in this world. Although it isn’t the most powerful economy, yet it is holding the most impressive streaks of all. Australia’s economy is achieving a big milestone just like the US. In 2018, GDP for Australia was 1,420.05 billion US dollars. GDP of Australia increased from 411.05 billion US dollars in 1999 to 1,420.05 billion US dollars in 2018 growing at an average annual rate of 7.39%.
It wasn’t only the blind luck that helped Australia escape the global recession but they were also well organized, Australia tried to minimize the effects of the crisis when all other countries were facing it through the implementation of several policies. One of the policies was the pension reforms in the 1990s. Australia set up a compulsory retirement system called the superannuation system– It requires employers to contribute 9.5% of employee’s salary into employee’s retirement savings. Australia’s superannuation assets top $2.9 trillion as of September 2019. Since companies and citizens have to build up retirement savings some of the financial burdens to pay off pension was taken off of the Australian government and hence they were having a low level of debt. The Australian government was then able to put money directly into people’s bank account to boost consumer spending which in turn stimulate growth. According to Reuters, Australia’s government unveiled AUD42 billion ($26.5billion) second stimulus plan which includes AUD28.8 billion for infrastructure, schools, and housing, as well as AUD12.7 billion cash payments for low and mid-income earners.
In addition to the above policy, there is another explanation of why Australia hasn’t dealt with economic turmoil – its trade relations with the rest of the world. Australia is sitting on a pile of valuable minerals such as Iron ore, coal, and gas. The country’s numbers were sluggish after the financial crisis. But they never quite dipped low enough or quite long enough to meet the definition of a recession. It takes two-quarters of negative growth to fall into a recession. Australia chose the right trading partner to escape the economic turmoil- that is China. China did a big fiscal stimulus in 2008 and spent a great deal of money in building new infrastructure. In 2008, the year when the crisis hit, China absorbed AUD32 billion (or 15 percent) of Australia’s exports. As china’s demands for raw materials grew it became Australia’s second-largest export market after Japan which was hungry for Australia’s rich supply of Iron ore.
The really important reform in terms of economic stability is the floating exchange rate. In 1983, the Australian government moved the Australian dollar onto a floating exchange rate. This meant that the dollar will be valued based on supply and demand and not by the influence of its government or its central bank. This is a very powerful shock absorber. If the global economy is hit by some sort of negative shock, the Australian currency will collapse. This reduces purchasing power concerning foreign goods, so we consume fewer foreign goods. Imports fall, directly boosting GDP growth, and we instead spend a larger share of our incomes on domestic products. Simultaneously, exports increase in both volume and value.
Migration has been an important influence on Australian society and the economy. Increasing skilled migration would make a positive overall contribution to Australia’s future per capita income levels. Migration contributes to the economy in many ways. As well as the up-skilling of the workforce, economies of scale and the development of new export markets would further add to the economic benefits.
WILL THE IMPRESSIVE STREAK COME TO AN END?
The wage growth of Australia is declining. The major causes of the slowdown in wage growth cited by both the Reserve Bank of Australia (RBA) and Treasury include the presence of excess capacity in the labour market (demonstrated by stubbornly high rates of underemployment); a steady decline in inflation and inflationary expectations; and a decline in the terms of trade since the end of the mining boom.
More homeowners are defaulting on their loans due to mortgage stress; it is expected to get worse as the housing downturn persists. According to new data from S&P global ratings it has been revealed that the proportion of Australian mortgages that were more than 30 days in arrears has increased from 1.33% to 1.38%.