Australia's Long Run Growth Rate Was Untouched By The GFC

Australia’s potential growth rate? Flawless (Getty/Peter Macdiarmid)

Via the Wall Street Journal overnight comes a new report looking at the “Long Term damage from the Great Recession in OECD Countires” by Laurence M. Ball from John Hopkins University in the US.

The report highlights that across the OECD, “weighted by economy size”, the loss of potential output is 8.4% but there is a wide dispersion of results across the OECD ranging from “almost nothing in Australia and Switzerland to more than 30% in Greece, Hungary,and Ireland”.

Ball says that there were two primary planks to Australia’s outperformance and that “Australia was almost unscathed because of factors including fiscal stimulus and strong exports to Asia”.

Laurence M. Ball
Working Paper 20185
http://www.nber.org/papers/w20185

The actual loss of potential growth Ball settles on for Australia is 2% and he says that the the growth rate for Australia pre-crisis was 3.33% but in 2014-15 is 3.11%.

That’s good news for Australia and the Australian economy and highlights that even though the RBA is concerned with the transition from mining to more broad-based growth across the entire economy, our productive capacity remains intact and indeed has been relatively enhanced by the GFC.

Add in relatively high interest rates and it’s no wonder the buyers love the Aussie dollar.

You can find the WSJ story here and Ball’s full paper here

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