Powered by MOMENTUM MEDIA
subscribe to our newsletter sign up

Aussies vulnerable to ‘inevitable’ global downturn

The safety net that rescued Australia during the GFC won’t be on hand during the next global downturn, according to one international asset manager.

Standard Life Investments chief economist Jeremy Lawson said Australian recessions have historically occurred when the rest of the world was weak.

“Australia hasn’t had a recession for 25 years. But even before that, it was rare for Australia to experience an idiosyncratic recession,” Mr Lawson said in Sydney yesterday.

Advertisement
Advertisement

But when the next global downturn does happen – and according to Mr Lawson, an eventual correction is inevitable – Australia will be “particularly vulnerable”.

“The [GFC] was concentrated or deepest and most prolonged in the developed economy,” he said.

“[Hardest hit were] those developed economies that had built up large private sector debt imbalances over the previous decade."

Mr Lawson added: “Australia got bailed out mostly by the fact that the commodities cycle had further to run and the massive Chinese stimulus. That’s not going to be available next time."

Emerging market economies are likely to do worse in the next global downturn compared to the US and Europe.

“At the same time, Australia will go into that downturn with less fiscal space that it did in 2008/2009 – materially less,” Mr Lawson said.

“Over the last decade Australia’s had one of the largest structural deteriorations in its fiscal position of any OECD country."

He continued: “We were in a really strong position on the eve of the commodities boom, but instead of saving that, it was treated as permanent and so taxes were cut too much, spending was increased too much, so we’ve got a large structural hangover.

"And now any global downturn would be guaranteed to cause a further deterioration.”

In an environment of weak external growth, the Australian household sector would become cautious.

“That would produce a cocktail of potentially a deep recession and much larger increase in unemployment than people are accustomed to,” Mr Lawson said.

The best thing for Australia to do would be to “get its house in order” with fiscal reforms before the next global downturn hits.

“If that doesn’t occur, I think what you’ll see is Australian living standards decline relative to other developed economies. I think that’s almost inevitable,” he added.

Aussies vulnerable to ‘inevitable’ global downturn
nestegg logo
subscribe to our newsletter sign up
FROM THE WEB
Recommended by Spike Native Network
DavidL - Why has it been used in high rise construction if it has never been approved for that purpose? How does it get past building inspectors in the first place?....
Mort - This is absolute nonsense from the shadow treasurer, who should know better. Why has Labor excluded non tax paying Commonwealth pensioners, if not for.......
Howard Patterson - It is not a matter of banning the product, it may be perfectly safe on a low rise building. When all the humbug is stripped away, the fact is that.......
Jim - The gravy train is about to be stopped, thumps up. ....