How did Australia avoid a recession?
Prime Minister Kevin Rudd
Australia is the only ‘advanced’ economy that avoided a recession. Although GDP growth has been anaemic in the first quarter of 2009, Australia is set for a speedy recovery with minor bruises from the Global Financial Crisis.
Countries most heavily hit by the crisis have been those whose financial system have been exposed to sub-prime mortgages or those whose economy relied on the export of non-essential goods and services.
The export of minerals is a significant contributor to Australia’s GDP. Although the demand for minerals dropped in the second half of 2008, the demand has remained strong throughout the crisis. This is mainly because of China, who has allegedly been stockpiling minerals to prepare for a quick recovery.
Australia’s banks have remained safe and sound throughout the crisis. Many did raise cash to shore up their balance sheet as well as to fund acquisitions of smaller competitors.
Similarly to Australia, Japan’s banks had limited exposure to sub-prime mortgages. In the beginning of 2008, after a long recession, Japan had its Non-Performing Loan problem as well as deflation under control and its economy was growing at a slow but steady pace. When the crisis hit, Japan suffered tremendously from the sudden drop in demand for cars and electronics from overseas. The economy spiraled back into negative growth. Although the Japanese financial system was unaffected, the drop in exports was solely responsible for the degradation of the economy.
Let’s hope that with the Asian economies picking up steam again and some of the major European countries posting GDP growth, the GFC can be left behind us.