Friday, April 12, 2013

They call it The Kangaroo Trick

Despite The Recent Devastating Floods, Australia’s Expansion is forecasted to Strengthen over The Next two years. In fact, The Country hasn’t seen a Recession since 1990. So, what makes Australia a Recession-free zone?

Only a dozen economies are bigger than Australia (in 2010 its GDP stood at $1.235 trillion; IMF data), and only six nations are richer than it in the world (it has a per capita GDP of $55,590, higher than that of countries like UK, Germany, Japan, US, et al). The country was ranked 2nd in the United Nations 2010 Human Development Index and 4th in Legatum’s 2010 Prosperity Index. And above all, while most of its counterparts have faced the fury of a financial tornado in the recent past, it’s the one that has avoided a recession since 1991. Well, that’s Australia for you today!

But then, the situation wasn’t always the same “Down Under”. Just 25 years ago the Australian economy was grappling with issues like high interest rates (during the ‘80s the minimum lending rate had reached 17%), negative growth (-1.6% in 1983), big budget deficits, et al, coupled with highly regulated financial system (read: protectionism). In fact, in 1985, Paul John Keating, the then Australian Treasurer (he was also the 24th Prime Minister of Australia, serving from 1991 to 1996) had declared if the country failed to reform it would become a banana republic. No doubt, barely five years later, the economy faced a nasty recession, but then, it was the last for this OECD nation. Since then Australia has grown at an average annual rate of 3.6%, well above the OECD average of 2.5%. What’s more? Despite the recent devastating floods, which has forced the Australian economy to contract 1.2% in Q1 2011 (it’s the sharpest fall in real GDP since the recession in 1991) Australia’s expansion is forecast to strengthen over the next two years. In fact, Moody’s Analytics maintains its full-year 2011 GDP growth forecast at 3.4% for Australia.

Many attribute Australia’s success to its opulence in minerals, which thriving Asian nations are hungry for. But then, the economy was standing tall and smiling wide when a financial crisis struck Asia in July 1997. Further, commodity exports have not always been in vogue. It was only in 2003 when minerals begin to garner big bucks for Australia (see chart), but by then the economy had escaped both the Asian crisis as well as the financial cyclone that hit America in 2001. In 2007 came the global financial crisis, but that too failed to drag down the Australian economy. So, what is it that makes Australia a recession-free zone?

No doubt, to some extent, the country has been benefiting from a resources bonanza that brings it big money for doing nothing but extracting minerals and shipping them to Asia (and will continue to do so for a while as Asia’s appetite for minerals shows no signs of slowing), but then that’s surely not the thing that can be credited for the country’s economic success. Rather, it’s the series of well-thought reforms carried over a period of 20 years (between 1983 and 2003) that has made Australia one of the most prosperous and resilient economies in the world today.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
 
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