Lucky country’s fortunes fade
Economy that beat recession is going from miracle to mediocre, writes Michael Heath
The global crown for the longest stretch of unint errupted economic growth is within sight for Australia — but it’s limping towards the finish line. Twenty- si x years without recession have put Australia within two years of overtaking the Netherlands’ record growth streak, and forecasts suggest it will reach that target. After all, the economy has a head start, with 2.5 per cent growth virtually baked in — 1.5 per cent from population gains that are among the fastest in the the developed world and 1 per cent from resource exports.
Yet the reliance on rapid immigration is straining infrastructure, while mining profits fuel riches for stakeholders but do little for the vast majority of Australians. Meanwhile, wages are barely growing, households carry some of the world’s heaviest debt loads, and productivity gains from the economic reforms of the 1980s and early 1990s have petered out.
There’s been no major economic reform since the turn of the century, with just about every attempt reversed or cannibalised by toxic politics.
And the impact is starting to show. Just when the economy needs growth drivers outside of mining, a slide in global rankings for innovation and education suggest living standards could decline. The miracle economy that shrugged off the global recession is turning to mediocre.
“Now that we don’t have the benefit of the mining boom, there’s nothing really that replaces it in terms of driving economic activity,” says Jeremy Lawson, chief economist at Aberdeen Standard Investments in Edinburgh and a former Reserve Bank of Australia economist. “The really big task of Belgium and the United Arab Emirates, with restrictive labour rules and tax cited as the most problematic factors
It slipped to 23 from 19 in the latest Global Innovation Index, behind France, Iceland and China
The percentage of Australian children learning a foreign language has slumped to 10 per cent from 40 per cent in the 1960s
Young Aussie students are slipping behind in maths, reading and science, overtaken by Slovenia, Vietnam and Korea, according to the Programme f or I nternational Student Assessment
Meanwhile, household debt is at a record 194 per cent of income, wages are stagnant and policy makers are fretting that consumers could be spooked into pulling back.
Still, conditions are far better t han during Australia’s l ast recession in the early 1990s, when unemployment topped 11 per cent. These days, the jobless rate is half that while inflation and growth are sitting just under 2 per cent. But growth has been flattered by immigration, and when looked at on a per capita-basis, its recession-free streak loses some gloss.
Bright spots include the education and tourism industries — Australia welcomed a record 1.2 million Chinese visitors last year, and demand is expected to increase. The downside to that is Australia chronically under-invested in hotels following the Sydney Olympics in 2000, leaving it rushing to catch up to other countries. An appreciating currency hasn’t helped.
Education is the country’s thirdbiggest export, yet one of the few areas where the government is trying to pass budget cuts is universities, potentially undermining their role as a centre of innovation.
“Crisis begets reform in Australia,” said Aberdeen Standard’s Lawson. “What tends to happen is you wait for the shock, you wait for the crisis, and the crisis comes and you’re forced to make much more significant adjustments at the time. So it’s a crisis- reform- growthcomplacency cycle.” —