Australia’s almost three-decade expansion -- a developed-world record -- has largely depended on four key factors that economist Saul Eslake says are unlikely to remain completely intact in a post-Covid-19 world.
Population growth, underpinned by immigrationA “peculiar relationship” with ChinaThe housing boom and the debt run up along with itGood economic policy, at least by comparison with most other advanced economies
“The first three of those I say ‘yep, aren’t gonna be there,” said Eslake, who has studied the Australian economy for four decades. “I still think you can argue that economic policy making has been better in Australia than a lot of other countries. I think that’s still true. It’s probably not better by as big a margin as it used to be.”
Australia’s 28-1/2 year run without a recession -- defined locally as two consecutive quarters of contraction -- is almost certainly coming to a close, a survey of economists showed Wednesday.
The economy has benefited from at least 1.5% annual economic growth baked in from a swelling population. Yet, net migration is set to fall 30% in the year ending June 30, and a further 85% in the ensuing 12 months as part of the virus fallout.
This is a dramatic change, not least for the housing market. The property bonanza from 2012-2017, fueled by low borrowing costs and pent up demand from more people needing a roof over their heads, then led to a construction boom. Less underlying demand for housing and the indebtedness of existing households are expected to constrain the market in the period ahead.
Then there’s the trade ties with China. Eslake says that the importance of this market to Australian exporters was bound to lessen as the Chinese economy slowed. “But it’s lessening even more abruptly now because of the deterioration in the political relationship,” he said.
Australia is the most China-dependent economy in the developed world. China buys its natural resources, spends billions vacationing in the country and sends thousands of its middle-class children there to be educated.
Prime Minister Scott Morrison’s government triggered a response from Beijing when it sought an independent review into the origins of the coronavirus pandemic. China accused the Morrison government of following the U.S., as the call came after the Trump administration demanded an inquiry.
China has barred meat imports from four Australian slaughterhouses and slapped tariffs of more than 80% on Australian barley. It has also drawn up a list of potential goods including wine, dairy, seafood, oatmeal and fruit that could be subject to stricter quality checks, anti-dumping probes, tariffs or customs delay.
“The Chinese certainly have form when it comes to using trade to express their displeasure with individual nations’ stances on various issues,” Eslake, the former chief economist at Bank of America Merrill Lynch and Australia & New Zealand Banking Group Ltd., said. “It’s a potentially serious problem, beyond the natural evolution of the economic relationship that was in train.”
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