Australia dodged the GFC bullet.
Our banks never failed. Sure, they were protected. but they never came close to needing a bailout from taxpayers or the government.
We didn’t need to suffer the type of austerity that gripped Europe. We didn’t see unemployment rise above 10% as it did in the United States, and where it still sits in Europe.
The GFC didn’t tip Australia into recession, but that doesn’t mean that the trauma wasn’t felt through the economy.
Since 2008, Australians have become more pessimistic, and more worried about the future. Confidence, be it among businesses or consumers, doesn’t seem to get up and stay up.
RBA governor Glenn Stevens and his colleagues have wondered about this. Stevens has talked about the “glass half empty” nature of economic discourse in Australia. He’s also bemoaned the lack of “animal spirits”, or the hunger among businesses to invest and grow.
Many economists have consistently painted Australia as an economy on the edge of trouble throughout the year. They are mostly, it must be said, based offshore or working for non-Australian banks, but you don’t have to look far to find them in Australia either. They have forecast a reversal of Australia’s economic growth and predicted an implosion of the housing sector. They worry about the collapse of the terms of trade without reference to the fact that it is still historically high. And of course, there has been the almost universal forecast that the Australian dollar is going to collapse to 67 cents and below.
This week we learnt that the Australian economy grew 0.9% in the third quarter. That took the annual rate to a rudely healthy 2.5% and it continues Australia’s record run without a recession into the start of its twenty-fifth year. It is now more than a generation since the last recession.
We have, through the year, also seen a strong employment market and continuing job creation. Forecasters have consistently underestimated the strength of this part of the economy.
In doing so they have underappreciated the impact on consumers.
The 10-year peak in unemployment at 6.4% unemployment was unnerving. But it was accompanied by both more people working than ever before. Relatively high unemployment masked underlying strength.
The good news now is that the unemployment level coming in at 5.9% last month, looks like it has broken the uptrend in employment since the GFC.
At the same time we have seen a fall in Westpac’s measure of employment anxiety, part of its consumer sentiment survey, which basically tells you whether people are worried about their jobs.
Consumers might say they are gloomy, but more Australians working is also more Australians spending as David Scutt pointed out yesterday with a deep dive into the national accounts.
A lot of economists recognised this in their commentary on the results, too.
Felicity Emmett, co-head of Australian economics at the ANZ said: ” The pickup in household consumption is encouraging, especially when combined with stronger wages growth.” Michael Blythe, the CBA’s chief economist said the “data deserves a positive spin.”
But perhaps Paul Bloxham, HSBC’s chief economist summed it up best.
“Today’s GDP numbers show an economy that is doing well, considering the circumstances. Australia is in its 25th year of continuous growth, which is the longest period expansion in the country’s history. Growth picked up in Q3, following only weak growth in Q2, despite two significant headwinds (collapsing terms of trade and business investment),” he said.
Which is likely why RBA governor Stevens told an audience of economists last week to “chill out” and enjoy the festive season.
There are risks through Australia’s links to the Chinese economy. There are also risks from collapsing mining investment and the lack of enthusiasm among of the non-mining sector to fill the void. The house price bubble in Sydney is a risk. And there are unknown unknowns.
But Australia, you’ve had a good year.
You’ve created jobs at a thunderous pace, and more Australians are working than ever before. You’re navigating a massive collapse in the terms of trade, a reluctance by businesses to invest, and a global economy that is slowing with a growth rate that is still very healthy by developed world standards.
So we are entitled to a bit of a merry Christmas.