Australia: recession, a distant memory  
Australia has seen 27 years without a recession and IMF and OECD forecasts show ongoing growth in coming years  
Population growth, productivity growth, commodity exports to China and other fast growing Asian economies have played an  
important role together with policy aimed at enhancing economic flexibility The floating exchange rate has been an important  
countercyclical and hence stabilising factor The housing boom has become a source of concern from a financial stability  
perspective with recent prudential measures allowing for a “positive correction”.  
Visiting Australia is quite an experience. Coming from Europe, there is  
the sheer number of hours spent in a plane. Upon my arrival last  
week, it turned out I had just missed a major sand storm and soon  
after leaving there were torrential rains. Weather conditions may at  
times be spectacular, so is the economic performance. This is a  
country that is in its 108th quarter of uninterrupted growth implying  
that for the past 27 years it has been without a recession. GDP growth  
is forecast to continue to exceed 3%. With a median age of the  
workforce of 38 years, many people haven’t experienced a recession  
for their entire working career. The picture in the eurozone or the US  
is quite different. What is behind this success story which is all the  
more impressive considering that over this period we have seen the  
Asian debt crisis, the bursting of the TMT bubble (technology, media,  
telecommunications), several recessions in Japan a major trading  
partner and global financial crisis of 2008. Was it a question of luck  
or good policy?  
In 2010, the deputy governor of the Reserve Bank of Australia gave a  
speech on “Twenty years of economic growth”, providing an overview of  
the growth drivers . Many of the explanations remain relevant.  
0 92 94 96 98 00 02 04 06 08 10 12 14 16 18  
Population growth has been a factor, both on the demand side and the  
supply side, by supporting a faster pace of potential GDP growth.  
Another factor is the exposure to China and its huge demand for  
commodities (iron and coal). More recently, China has become a  
particularly important client of the services sector: tourism and  
Source : Australian Bureau of Statistics, Thomson Reuters, BNP Paribas  
Markets Overview  
Economic scenario  
Twenty Years of Economic Growth, Speech given by Ric Battellino, Deputy Governor,  
Reserve Bank of Australia Bulletin, September Quarter 2010  
Ecoweek 18-44 // 30 November 2018  
The flexibility of the Australian economy has been a key factor in the  
sustained growth performance and top of the list is the flexibility of the  
exchange rate. The decision in 1983 to float the Australian dollar is  
generally considered as the single most important policy decision taken  
in recent decades. In a commodity rich economy where swings in  
volumes and commodity prices can have a big impact, the floating  
exchange rate acts as a countercyclical factor: booming commodity  
exports will trigger a currency appreciation which helps in avoiding an  
overheating of the economy.  
In addition, there is, due to a variety of reasons, a lack of growth in  
real wages and the Reserve Bank of Australia considers this is an  
issue for sustaining prosperity . The housing market has increasingly  
become an area of attention after years of significant price increases  
fueled by the build-up of mortgage debt. Measures to cool down the  
market have been contributed to a recent decline in house prices,  
deemed a positive correction rather than anything more concerning,  
albeit with price levels still challenging affordability.  
Various other reforms are credited with having boosted productivity  
growth in the 90s: competition and industry policy, measures to increase  
labour market flexibility, financial system reforms and central bank  
independence. As a consequence, government finances improved  
significantly, including a reduction in the debt/GDP ratio, which in turn  
increased fiscal policy leeway to support growth if needed, like in  
William De Vijlder  
2008. According to the IMF, Commonwealth government net debt  
represents 20.6% of GDP in 2018 with a fiscal surplus expected in the  
coming year, underpinning AAA/Aaa ratings. Inflation targeting was  
introduced in 1993 and monetary policy has succeeded in keeping  
inflation in the target range of 2-3% most of the time, albeit currently  
below this range reflecting minimal growth in real wages. Compulsory  
contributions to individual pension accounts reduces the demographic  
drag on growth of an ageing population while the nation’s sovereign  
wealth fund is managed to help fund public servants’ pensions.  
All this does not mean that the country is not facing challenges. One  
is population growth, essentially driven by immigration, which requires  
the economy to create enough and the right type of jobs so as to  
avoid an increase in unemployment (currently around 5%; annual  
working age population growth has fluctuated between 1.5% and  
1.7% in recent years) and maintain positive per capita GDP growth.  
As shown in the chart, per capita growth has obviously been slower  
than GDP growth and on this measure there was a very shallow  
recession in 2008 Q4 and 2009 Q1.  
Another one is the exposure to China although according to the IMF  
Australia’s diversified economy helps to cushion the impact of  
negative growth shocks coming from China. Moreover the “trade  
linkages of the rest of Asia with Australia are similar in size to those  
between Australia and China” .  
To quote Philip Lowe, governor of the Reserve Bank of Australia: “some pick-up in  
wages growth would be a welcome development. It would help deliver a rate of inflation  
consistent with the target, it would help with the debt situation and it would add to our  
sense of shared prosperity.” (“Productivity, Wages and Prosperity”, speech by Philip  
Lowe, 13 June 2018)  
Australia’s linkages with China : prospects and ramifications of China’s economic  
transition, Philippe Karam and Dirk Muir, IMF working paper 18/119, 2018  
QUI SOMMES-NOUS ? Trois équipes d'économistes (économies OCDE, économies émergentes et risque pays, économie bancaire) forment la Direction des Etudes Economiques de BNP Paribas.
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