Australia and the financial crisis

Hey, don’t you all want to know things about Australia? If only to counterbalance the Canada news? Too bad, here goes anyway. It’s unlikely many people have stopped to ask how Australia has been faring in the financial crisis, for the simple reason that we’re in an awkward part of the world – not really Asian, certainly not European, so those meta-news stories about economic regions never include us.

So how are we doing? Not too bad really, thanks to a mixture of internal and external factors. At the moment, the question is whether the slowdown will reach the level of a technical recession or not. The external ones are easy: in a word, China and Chinese demand. This country has been riding high on a commodities boom as we sell everything we can pull from the ground to China as fast as we can extract it. This demand means that as long as the Chinese economy holds up the worst effects of a global recession are unlikely to be felt.

Where in many other countries, the “D word” refers to “Depression” here it’s merely “deficit”. The Rudd government was pretty reluctant to admit the budget was heading into a slight deficit (because that means the other party will make fun of them) but has now seen neokeynesian sense and said better a deficit than a recession.

So the state of the budget gives a lot of room to move for the government to institute stimulus measures and guarantee assets. Equally, Australia’s typically higher interest rates compared to Europe or America mean that the macroeconomic lever can be used to stimulate the economy and ease mortgage pressure and so forth, and this is what is in fact happening, with rates being repeatedly cut since September.

Probably also quite important is the tightly regulated state of the banking system here. In the past this was often criticised as making the financial sector uncompetitive compared to other countries but now it pretty simply means that there’s no serious danger to any banks here, Macquarie Bank’s “please financial market animal spirits, do not squish us just because we’re an investment bank we are stable we swear” website message notwithstanding.

So there you have it, a country you don’t think about much is also facing a slowdown but weathering the crisis better than most for various structural reasons… as long as things don’t go into total global meltdown and the Chinese keep buying stuff we dig out of the ground. Worries about budget deficits and the degree to which there will be a slowdown are, in an international perspective, pretty minor.

Fun, hey?