The FT published a piece over the weekend claiming that Australia is on track to surpass 26 consecutive years of growth, surpassing the record set by the Netherlands in the post 1945 period of capitalism.
Australia’s right-wing finance minister Joe Hockey was bullish, claiming that the slowdown in China would not damage the Aussie economy because there were big investments coming from the Chinese and other Asians that would keep the Australia’s record of avoiding a capitalist recession.
“Cassandras are loud, whereas optimists are getting on with the job. We are going to break the record and go beyond the Dutch,” he said. “Our growth is somewhere between 2 and 2.5 per cent and that’s with the biggest fall in the terms of trade in our history.” The Netherlands enjoyed 26 years of economic growth between 1982 and 2008 on the back of discovery of North Sea oil. In comparison, Australia has enjoyed 24 years of uninterrupted growth.
However, that might be coming to an end. The latest real GDP figures for Australia came out today. Real GDP growth slowed to just 0.2% in Q2 2015, taking year-on-year growth down to 2%, the slowest rate since 2013. The slowdown is driven by slowing demand from China for Australia’s raw materials. The fall in net exports has taken 0.6% pts off growth.
And it’s not strictly true that Australia had avoided recessions in the last 20 years or so. If we measure Australia real GDP per head, then there was a contraction in 1990-1 and the Great Recession saw growth per head flatten out. Even so, it is a pretty good record compared to any other major advanced capitalist economy.
The reason is fairly clear, I think. Australia has been ‘lucky’. It has been alongside the huge expansion in growth and trade in China and other Asian countries in the last 25 years during the period of ‘globalisation’. As Hockey said, “Australia was uniquely placed to benefit from China and Asia’s long-term growth by exporting resources, agricultural produce and services to the region”. Also the economy benefited from an influx of skilled labour through immigration from all parts but also immigrants who came with wealth of their own to invest.
This shows in the profitability of Australian capital. I collated three measures of Australia’s profitability as a capitalist economy since the early 1980s and profitability has risen by 40-60% (but that’s not unlike many other capitalist economies during the so-called neo-liberal period).
But are the good times over? The latest GDP data might suggest this. Chinese economic growth has been dropping off and other Asian economies are in trouble. Demand for Australia’s iron ore, coal and other minerals has weakened. Australia’s trade account has been deteriorating and unemployment is rising.
If you compare average real GDP growth per head since 2008, Australia’s per capita growth has slowed from 2.5% a year from 1992 to 2007 to exactly half that rate at 1.25%. Australia did not escape the global Long Depression at least in the sense of lower growth. Also, the profitability graph above does suggest that profitability may have peaked in the last ten years or so.
The argument of Hockey is that, although Australia’s mining industry may be falling back because of weakening Chinese demand, Australia can compensate for that through the services sector and foreign (Chinese) investment. “Our services industry, which is 70 per cent of our economy, provides everything that the emerging middle class wants in healthcare, education, tourism and financial services,” he said. “It is starting to lift quite significantly.”
For the first time in 2013-14, China became the largest source of foreign investment in Australia, leapfrogging the US. Total investment in real estate was $74.6bn, up from $51.9bn a year earlier. Hockey reckons that the boom in property investment was helping the economy’s transition from a decade-long mining investment boom by creating jobs in housing and apartment construction. “It is helping to fuel a construction boom in Sydney, Melbourne, increasingly in Brisbane and I think we will see it spread around the country,” Hockey said, claiming that fast-rising house prices in Sydney and Melbourne were not a “bubble”.
It would be interesting to hear from Australian readers of my blog on how they see Australia’s economy panning out.