Australia on course to celebrate 30 years of growth, says Oxford Economics
Australia's economy will remain solid thanks to sound policy, labour mobility and good luck, says UK-based researchers, Oxford Economics. The result: Australia will continue to outperform other, major advanced economies, including the G7 group of industrialised countries.
The report endorses recent Austrade analysis, which shows that trade with China and Southeast Asia is supporting Australian export growth in commodities, education, tourism and services.
According to Gabriel Sterne, Global Head of Macro Research, Oxford Economics, Australia’s 28 years of uninterrupted growth is changing economists’ view on the potential for mature economies to sustain healthy growth over multiple decades.
‘Australia’s record-breaking expansion is a positive beacon for other advanced economies,’ he says.
The International Monetary Fund (IMF) shares the positive outlook. In its latest assessment the IMF forecasts that Australia’s real GDP will grow by an average rate of 2.7% per year until 2023, up from an average 2.6% per year from 2014 to 2018.
The three factors supporting Australian growth
The Oxford Economics report found three drivers that underpin Australia’s resilience.
- Better macro policies: Sterne says Australia’s growth is partly due to the country’s counter-cyclical fiscal policy. In 2009, the government stepped in with a massive infrastructure spending programme, but has recently run surpluses in response to stronger growth.
In his report, Sterne noted warnings about a recession in Australia, given falling house prices and the potential impact on consumption.
He argues, however, that Australia's mature economy is better poised to responsibly manage household debt levels compared to many other developed economies.
He notes that financial regulation strengthened by regular stress tests since the early 2000s has allowed for policy-cooled lending growth without causing bank stress.
- More flexible goods and labour markets: Australia has robust natural stabilisers. When mining was booming, the major cities on the east coast suffered from a rising Australian dollar. The overall impact was largely mild because of very high labour mobility, according to Oxford Economics.
The report says labour has shifted to non-mining areas over the last few years and non-mining sectors have improved, such as tourism and education exports.
Another key structural feature is high, 1.7% per year employment growth, which is more than twice the average for major advanced economies. Much of this growth comes from immigration.
- … and good luck. The report also points out that China’s role as a global shock absorber has disproportionately helped Australia.
The US and Chinese economic cycles have run counter to each other over the past decade. Oxford Economics asserts that since Australia is strongly affected by both the US and China, its economy is subject to mutually offsetting global shocks.
For example, China’s strong stimulus in 2009 brought in massive mining investment just as advanced economies seriously suffered.
Still, Oxford Economics warns that Australia may face some challenges: its economists estimate a 25% chance of a global recession within the next two years.
In support of its view, the research institute says there is a potential weakening of China’s growth. This may impact global trade and slow the Australian economy.
In this event, however, the report remains confident of Australia’s prospects. estimates that global downside risks are lower than during previous shocks, including events such as the GFC and the Eurozone crisis.
‘Australia could get dragged down by a global recession, but the most likely outcome is the expansion surviving a while longer,’ it says.
Oxford Economics, Research Briefing, Late cycle? Not necessarily: lessons from wizardry of Aus (5 March 2019)