Recessions in Australia: three reasons why we’ve avoided them

Australia has long been a global escape artist when it comes to avoiding recessions, and here’s why we could do it again in 2023.

Countries are sliding towards recession as energy prices skyrocket and central banks inflict financial pain on their people through harsh interest rate rises.

In the US, the Federal Reserve has signalled it is prepared to push the American economy into negative growth to rein in surging inflation, which is currently well above 8 per cent.

Britain and Europe also face fast-rising consumer prices, and an energy crisis sparked by supply issues and Russia’s invasion of Ukraine, and appear increasingly likely to suffer a recession too.

In September the World Bank warned that the planet may be heading towards a global recession in 2023, and a string of financial crises in emerging markets and developing countries that would cause “lasting harm”.

Australia, however, could continue to be the Harry Houdini of global economies when it comes to escaping recessions, despite sharp falls in house prices caused by our own Reserve Bank’s hefty rate rises.

Since Australia’s last recession in the early 1990s, the US – the world’s biggest economy – has battled through three more: one amid the dotcom crash in 2001, a big one during the global financial crisis in 2008-09, and a sharp recession when Covid hit in 2020.

Australia has avoided being caught in the recession trap several times.

Recessions are nasty things that typically cause high unemployment, business failures and bankruptcies as demand for goods and service shrivels up in a shrinking economy.

They are commonly defined as two quarters – that’s six months in non-finance speak – of negative economic growth as measured by gross domestic product (GDP).

Our Reserve Bank says “recessions inflict great hardship on households and businesses, and they can have long-lasting effects on both society and the economy”.

“The social and economic costs of recessions can be large and persistent. Some people who become unemployed in recessions face long-term unemployment, even when normal rates of economic growth resume,” it says.

During the GFC and Covid crunch, Australia’s economy shrunk for one quarter only.

In 2017 Australia broke the world record for the longest string of uninterrupted economic growth, and we’ve extended it since then.

If the world goes into recession in 2023 there’s a chance we will be caught up, but I believe it’s just as likely that we once again squeeze ourselves out of a straitjacket submerged in a tank full of hungry piranhas. Here are three reasons why.

1. A FLEXIBLE DOLLAR

Many countries peg their currencies to US dollars, but ours is traded widely on financial markets and reflects commodity price moves. So when the world looks like going down the toilet and commodity prices sink, our dollar drops sharply – which is bad for travellers but protects our economy as Aussie businesses get paid more for their exports.

2. STRONG BANKS

Many Australians hate the big banks, but they are among the strongest in the world and regulators ensure that businesses and households are protected from potential collapses. None perished in the GFC, unlike elsewhere.

Similarly, our Reserve Bank has been under fire for raising interest rates despite flagging it wouldn’t happen until 2024, but this week’s smaller-than-expected rate rise shows it won’t blindly follow the Fed and other central banks into recession.

3. CHINA

China is struggling with Covid impacts and an economy that recently shrunk 2.6 per cent in a quarter. It’s still Australia’s biggest customer, and when it recovers and stops its trade attacks on our exporters – and a Taiwan war is averted – it should continue to help our economy avoid recessions, just like it did during the GFC.

Originally published as Recessions in Australia: three reasons why we’ve avoided them