Australia may struggle to escape the next global slowdown

SYDNEY: Australia’s record run of economic growth may struggle to survive the next global downturn.

The nation’s vulnerability to increasing external risks was the overriding concern of a panel discussion held yesterday between Heather Ridout, chair of Australia’s largest pension fund; Chris Bowen, who opinion polls signal will be the country’s next treasurer; and Sally Auld, JPMorgan Chase & Co’s local head of fixed-income and currency strategy.

Their main conclusions: the United States will probably tip into recession in the next 12 to 18 months, any escalation of the US-China trade dispute will buffet Australia’s open economy, and the nation won’t benefit from a repeat of the Chinese stimulus it enjoyed a decade ago.

“If the current trade skirmish turns into a full-on trade war, I am at the more pessimistic end of the scale of what that means,” Bowen told the Asia Society event held in Bloomberg’s Sydney offices.

“I’m a little bit more worried about the animal spirits, both in Australia and elsewhere, and the confidence impacts. It could be worse than we might hope.”

Australia has avoided recession for more than 27 years and dodged the 2009 global downturn by deploying fiscal policy at home and then riding a wave of demand for its commodities as China injected massive fiscal stimulus.

Today, Australia is potentially the meat in a trade-war sandwich as the most Chinadependent economy in the developed world and one of the United State’s staunchest allies for the past 70 years.

“There has always been this sense that the risks around what’s happened with trade wars, and the way that was going to play out in Asia, was always to the downside,” Auld said.

“Trade wars are largely unprecedented in the last couple of decades, at least on this scale.”

Ridout said that, during a recent trip to the United States, she found the overwhelming consensus was that a recession there is almost inevitable.

The combination of an economy already at full employment receiving a huge dose of stimulus from the Trump administration’s tax cuts suggests inflation is likely to accelerate, prompting the Federal Reserve to keep raising rates.

“There’s every possibility that the Fed will overshoot on this,” said Ridout, chair of AustralianSuper Pty and a former Reserve Bank of Australia board member. — Reuters