Australia, the country that could still weather the recession

The lucky country is the only power likely to avoid official ‘red numbers’ in its GDP during the Great Pandemic. Unlikely, but not impossible.

 

The economic pandemic that has spread the spread of Covid-19 throughout the planet has not gotten around the Antipodes. Australia is not so fortunate that it has become a kind of Ivory Tower. The coronavirus has settled in its territory as in the rest of the latitudes of the planet. Barely a hundred deceased, with a contagion level that marked its zenith on March 28 (460 people) and that in recent times has accounted for a couple of cases per day. The certificates of sick by Covid-19 slightly exceed 7,000 and those cured are close to 6,500. It is true that, until now, its southern situation has helped it, under the summer solstice, less prone to the spread of the epidemic. But, so far, the health crisis is under control. At least, if compared to other countries. Close to or far from its geography and the robustness of its health system. To the economy, the bill has also come to a nation that boasts the longest period of sustained growth. With the permission and the exception of China, which has certified more than four decades of prosperity in its GDP -since the death of Mao Zedong in 1976-, but which, unlike Australia, during this long journey, has passed from being a developing country to become the largest of the emerging areas and the second global power, although without having gained the status of a market economy or having assumed the recognition of a high-income nation.

The Aussies have fallen into contraction.

It has just certified that during the first three months of 2020 its GDP contracted by 0.3%. Hardly anything more than a flat-out slowdown. And, although a 10% collapse in activity between April and June is expected -an official prediction from the beginning of this quarter-, which would lead it to declare two consecutive quarterly periods in recess, the factor that officially determines the contractions, the last Market diagnostics say its hasty exit from lockdown and gradual de-escalation has already taken root in the activity rate. Slightly, but on the rise. In other words, it has lit the fuse of dynamism. The first recession in Australia since 1991 may be seen in the coming weeks, but analysts assure that this is the only industrialized corner that is available, if not to avoid it,

Of course, it will not go through the largest recession in its history, which dates back to 1931, its black year, that of the great drought. And, although it is not ruled out that the deterioration of GDP persists in the first three quarters of this year due to the effect of Covid-19 and it is predicted that its economy, similar in size to that of Spain at the end of 2019 (1.3 trillion dollars) may not be able to reestablish its weight for three years, the market gives a low probability that the southern country will avoid the red numbers. It is an arduous and difficult task, but not entirely ruled out and that, in any case, will anticipate a brilliant recovery. Prime Minister Scott Morrison’s cabinet has released an $ 80 billion fiscal stimulus program to safeguard, over the next six months, V recovery. One of the few exceptions to a slower and more uncertain alternative that has been installed among advanced economies. If the three-tenths drop in GDP had not been registered in the first quarter, concentrated in March, the options would have risen almost exponentially. An interpretation that the Treasury Minister himself, Josh Frydenberg, subscribes as he advances that the current quarter will see the largest decline in the country’s GDP since the Great Recession.

Prepared for the worst

The Australian Federal Reserve, the country’s central bank, was one of the pioneers in the Anglo-Saxon world in lowering its interest rates. Anticipating, even, the successive maneuvers to the fall of its namesake in the US. Until placing them in a scenario close to zero. In addition to launching a program to purchase sovereign debt, Australian bonds, at low yield. The anti-crisis measures, therefore, have been rapid and their volume, adequate to stop the initial onslaught of Covid-19, pending the need for new fiscal and monetary flashes for which Morrison has already admitted having them prepared – in collusion with his banking authority – up to a not inconsiderable level: 320,000 million Australian dollars – about 208,000 million dollars – the equivalent of 16.4% of its GDP. Jointly. That is, fiscal and monetary resources.

queues-in-Australia-covid19

On this occasion, however, the crisis in Australia has been as sudden as in any other part of the world. Hundreds of thousands of workers have been sent home; especially in the commerce, construction or tourism sectors and in segments such as airlines, which have monopolized queues at unemployment offices. During the tsunami, however, the fourteenth world economy – lagging behind the Spanish one – managed to steer the pace of job creation in tandem with the end of its contraction, of a single quarter, which prevented its declaration of a technical recession. Two consecutive quarters in negative scenarios. James McIntyre, an analyst at Bloomberg Economics in Australia, is one of those who believe that, even with little or no chance of avoiding the recession this quarter, the economy will rebound in a meteoric way. As in 2009. “The expulsion from the labor market is going to be substantial, but it will be contained as soon as growth reactivates and, when it occurs, it will do so above its potential for an extended period, after which the unemployed workers will resume their tasks and, most likely, the demand for employment will rise again and allow job applications from abroad ” . McIntyre opts for a 6% GDP recession this year, wage declines, and a drop in inflation. But he appreciates the effort of the Federal Reserve of his country, its persistence in maintaining the Quantitative Easing (QE) plans to curb the current low returns in the markets and in the soothing effects of the Canberra budget plans for the automatic stabilizers to put the gear of the Aussie economy in gear . It is the letter that would save the country from a recession that seems inevitable.

The release of Covid-19

Australia and its New Zealand neighbor are on the list of nations that could first be saved from the pandemic. Sanitary and economic. And the consensus of the market and multilateral organizations coincide in linking the overcoming of the first with the take-off of the second. Along with South Korea, despite the outbreak of infections in the midst of de-escalation, and Taiwan, remarks The Economist in a recent article, from the concessions towards the social normality of his maneuvers of economic takeoff and the end of the confinement. Frydenberg admits that the jump in the unemployment rate of 10% this quarter would have shot up five more points had it not been for the so-called JobKeeper subsidy, which establishes minimum payments of 1,500 Australian dollars for six months, which have been activated in a way intense due to the pandemic. Expectations for growth and employment remain pessimistic, as well as for wages and the reactivation of domestic demand, but the swords remain high. Still.

Despite the IMF heralding an even deeper recession of 7.2%. Larger than its last two (2.2% in 1982 and 1% in 1991) and that only allows comparison with those of the nineties of the nineteenth century and the thirties of the last century. Although, as suggested by researchers such as Robert Ewing who recalls that, during the Crash of 29 , the Australian GDP may have fallen by between 10% and 20%, but who highlights the resistance of the southern economy, which has once again become manifest. The Fund also calls for a brilliant recovery. They give Australia one of the most intense growths in 2021, 8.4%.Bill Evans, Westpac’s chief economist, was also optimistic until recently and although the official red numbers are already a reality, he is fully confident of the recovery during the second half of the year. Not in vain, it came from growing 0.5% only in December. “Everything happened very quickly,” explains economist Stephen Koukoulas, a former economic advisor to several Social Democratic cabinets, “with price drops of 15%.” But, fortunately, “as has happened on other occasions, unemployment has finally slowed down and low-interest rates are helping to cushion the recession”. Australia’s social susceptibility to employment is especially high: “the economic downturn without work is disastrous; You can no longer say that you do not care about your job because you do not like it, it is because you cannot access any, ”says Koukoulas to try to understand this phenomenon more precisely. “The virus has generated a climate of greater unpredictability in this regard.” Frydenberg’s message also leaves a trace of optimism. “Our temporary measures are well strung together and with clear goals to provide mechanisms of isolation and protection from the drop in activity and will help the Australian economy to resurface stronger, on all fronts, without structural damage and with a predisposition to management. the budget that returns us to fiscal sustainability in the medium term ”.

Auto Stabilizer Enthusiasts

Ian Harper, a professor at the Melbourne Business School, stresses an intangible but highly effective factor: Australia’s economic authorities have always fought recessions “like a plague.” Because for decades they have assumed the cookbook of former US Treasury Secretary Larry Summers of having “contingency plans” during the fat cow years to address future GDP downturns. Australia is a nation that is enthusiastic about automatic stabilizers, tells Business Insider. In addition to his ability to implement infrastructure projects. Like those devised by Lindsay Tanner, head of Finance between 2007 and 2010, who was inspired by the great railway works undertaken in the nineties that weathered the recession. With only 1% of GDP resources. His theory is based on the awakening of companies and workers to the heat of programs that spur private activity as soon as the flame of recovery is lit. Provided there is enough financial ammunition, low-interest rates. And political docility, so that parliament and municipal governments quickly process budget allocations and adequate laws for recessionary scenarios. It was activated in 2008 by the Labor government of Kevin Rudd. And it involved long-term unemployed., dedicated to rehabilitating or building neighborhoods. Instead of waiting for large engineering works, such as tunnels or gas or oil supply networks, airports or bridges, to come to life after their technical or environmental approval processes. Australia relegated them as a second focus of momentum, a second engine to activate after takeoff and acquire cruising speed. Few cabinets like Rudd’s “have gained as much advantage from the recession.” His motto was “keep going until the game is over.” With public support and incentives for companies and workers. Under the thesis, essential to implement the automatic stabilizers, to lower taxes during the first stages of the contraction, to recover their levels – or even exceed it, in the first dynamism exercises.

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