While many of Australia’s global counterparts continue to feel the reverberating effects of the GFC – which was officially declared over by Reserve Bank Governor Glenn Stevens last month, the performance figures for the period show Australia’s economy held out remarkably well.
Australia’s performance figures during the GFC:
Decoding the figures
While the GFC saw leading economic nations including the UK, US, Canada, Germany, Italy, France and Japan plunge into recession, Australia’s national GDP only fell in one quarter – the December 2008 quarter – by 0.9%.
To put this into global perspective, the recession saw the UK record a plunge of -6%, USA -3.8%, Canada -3.2%, Germany -6.7%, Italy -6.4%, France -3.5%, and Japan a whopping -8.6%.
The collapse of Lehman Brothers, one of the United States’ most respected investment banks, was the major contributor to negative September–December 2008 quarter results.
The collapse smashed confidence around the world and plunged many markets into a deep recession. Almost immediately after this, Australia’s unemployment rate began to shoot up, increasing from 4.3% in September 2008 to 5.7% in March 2009.
A helping hand
Increasing fears of a global financial meltdown saw governments around the world implement strategies to combat falling output – such as the Economic Stimulus Packages provided in Australia.
The first round of stimulus handouts arrived in bank accounts in December 2008, providing a boost to Christmas spending, and the second was distributed primarily in April 2009, lifting end of financial year expenditure.
The stimulus packages arrived at a time when Aussies were feeling the pressure of the economic downturn, providing a much needed lift for retail spending. And the positive effect of this cash injection can be seen in the performance figures – national disposable income increasing by 8.7% in the December 2008 quarter to $195,733 million, and again by 1.7% to $198,939 million in the June 2009 quarter.
Falling interest rates also assisted in alleviating some of the strain, reaching a 49 year low of 3% in April 2009.
The sunny side
While GDP certainly decreased during the GFC, Australia avoided sliding into an official recession. And while the unemployment rate rose (reaching a high of 5.8% in June 2009), those that retained employment actually experienced an overall increase in disposable income.
Many Australians are actually in a better position now than before the downturn – what with significantly lower interest rates (currently at 4%, compared to 7.25% at the start of September 2007) and greater national disposable income (estimated by IBISWorld to reach $194,500 in the March 2010 quarter compared to about $181,000 million in late 2007).
Add to this lower fuel-prices (now at US$80 per barrel compared to US$145 per barrel in mid-2008) and it’s not surprising that household spending has been relatively strong over 2009-10.
Where to from here?
While on average households remain better off now than before the downturn, the first home owner boost encouraged many Aussies to enter the mortgage market – meaning we are just as indebted now as pre-GFC.
And what with rising interest rates, fuel and electricity prices, many Australian families may again feel the pinch in 2010-11.
Nonetheless, conditions are forecast to continue to improve, with IBISWorld projecting that slow economic growth in the March 2010 quarter will be replaced by solid growth for the remainder of the year, as households continue to spend and businesses join the fray.
IBISWorld also expects the unemployment rate to continue to trend downwards and, barring any reversal of the improving trend internationally, we are forecasting the Australian economy will remain strong for the foreseeable future.
Robert Bryant is the general manager of business information firm IBISWorld.
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