I’ve lived through a few recessions in my time. I still remember getting the candles out (yes, really) during the miner’s strike of the early 1970s in England. I was 9. It was fun – as a family we knew when the power cuts were coming to our little town, and when to get the candles ready.
The oil price shock brought on by the Arab-Iraeli war a year later would plunge the world into recession as oil prices quadrupled. The same happened again after the Iranian revolution 7 years later, which, combined with strict monetary policy plunged the UK into deep recession and mass unemployment (reaching 4 million at one stage). Another miner’s strike, this lasting just under a year, was finally defeated by the government of the time, who had cut taxes and deregulated the stock market ushering in a surge in share prices, which promptly collapsed on ‘Black Monday’ (a day that coincided with a hurricane sweeping across southern England, which closed our school for the day – I was now a teacher). The resultant interest cuts forged a strong recovery which only resulted in a deep recession in 1991. The UK had suffered through 3 major recessions in 20 years, one every 7. I taught this as an economic rule – a recession every 7 years.
By then I had moved to Singapore, which was enjoying two decades of non stop double digit GDP growth. I moved to Perth, Western Australia, just as the Asian economic crisis hit in 1997.
[If you, dear reader, see my exit just prior to these two recessions as anything but pure coincidence, please be assured I am not writing this post from my own island.]
And so to Australia, whose last recession was in 1991. 25 years of continuous economic growth has seen the country become a confident and influential player on the world stage. The 12th largest economy, boasting some of the best places to live.
With budget season now behind us, the latest figures predict our economy will continue to grow for at least another 5 years (albeit slower at 2 to 2.5% a year), which will stretch our period of non stop growth to 3 decades. Quite an achievement.
No doubt people will argue about whether we have invested this growth correctly, have built the infrastructure and society we want, which looks after as many as it can, and allows families to live in peace, and prosper. Some have got richer than others. 105,000 people still live on the streets, homeless. It’s not perfect by any means.
Government budgets are in deficit as the ‘mining boom’ ended and built-in spending programs have persisted. Billions of dollars of government spending cuts are blocked in the Senate (hence the double dissolution election coming up), and surpluses are many years away. Federal government debt has risen to just under 40% of GDP (in WA, state government debt has blown out to $40b or almost 100% of WA GDP).
Taxes in Australia are about the same as in other developed countries, but are more slanted towards direct (income and profit tax) than indirect (GST, taxes on cars, alcohol and cigarettes).
Meanwhile inflation is negligible and predicted to stay around 1%. The most recent quarter, it even went negative (hence the recent cut in interest rates to a record low of 1.75%). Interest rates could go to 1.5% later in the year, or even next month.
Unemployment is around 5.5-6%, and may rise a little more, but is unlikely to go much higher. A threat of a recession is small (we’d need something in excess of 8.5% unemployment for that).
Many WA businesses are feeling the pinch, and have been so for about 3 years. The real estate market has gone nowhere, and is still oversupplied in terms of the number of properties for sale or rent. Population growth in WA has slowed as those that came here for the ‘mine building’ boom have returned home.
Most people and businesses have ‘got used’ to the new normal of 2016. It’s no longer 2012, or 2006. The drag from mining and commodity prices is easing. Other industries are showing brighter signs, and everything feels a little more steady, if cautious. You have to work harder now for every dollar, every deal. [This is where the good sales people and good businesses prosper.]
Much depends on China. If China continues to grow, at 5% or 7% or even more, then what China wants, WA has. The US economy has improved, and the UK is one of the strongest in Europe. A few possible speed bumps are spread out in front of us: the threat of a ‘Brexit‘ and the election of Donald Trump to the US Presidency. Both these, and especially the latter, have grave consequences for world growth. And, make no mistake, we all live in the same world. While the chances of both happening are less than 50%, they are not zero by any means.
For now then, it looks like Australia will continue to grow, almost inexorably onward. It’s blue skies over the Great Southern Land…