Australia is another on the short list of countries that “escaped recession” (another is Poland, which I wrote about earlier). As much of the developed world struggles with job loss and weak economic groundwork, Australia managed to push through the global meltdown with just one quarter of negative growth, -2.8% annualized growth in the fourth quarter of 2008. Since then, GDP in the first and second quarters of 2009 grew at an annualized pace of 1.6% and 2.5%, respectively. (Note: the chart on the left illustrates growth over the year, rather than annualized.)
To what does Australia owe this honor? Net exports and policy. First, while most of the developed world saw export demand plummet – in the US, exports dropped at an annualized rate of 29.9% and 5.0% in the first and second quarters of 2009, respectively – Australia, with its high concentration of primary products exports (foods, fuels, minerals, etc.), benefited from positive real export growth of 8.2% and 3.9% (annualized rates) during the first and second quarters of 2009. Imports fell even faster, and net exports picked up the slack for the huge drag on GDP coming from inventories and investment.
In 2008, 14.6% of Australia’s exports went to China, whose economy, as we all know, is faring much better than previously expected. And in July, Australia’s exports remained strong to China, growing 4.6% over the month.
Likewise, the Australian government underpinned the economy with huge fiscal stimulus, around $42 billion AUD or 3.5% of GDP, and robust expansionary monetary policy, cutting its cash rate 400 bps to 3.0%. The stimulus firmed household spending’s contribution to GDP growth above zero.
Australia escaped the recession, but it is not immune. Last week, the OECD released its updated forecast, which includes estimate of potential GDP. Although stimulus and exports kept Australia afloat, production remains well below the OECD’s estimates of potential output. And well, so does the rest of the world.