For those who don’t know yet, Australia is currently the record holder for the longest consecutive run without a recession. For your information, a recession is defined as negative growth over two consecutive financial quarters. The previous record holder was the Netherlands who went without a recession for 26-years, from 1982 to 2008.
Australia’s current run has been going from 1990 when they experienced a recession in the early part of the year and has continued to this day. That in itself is a feat that demands a little closer inspection and then some thorough introspection to see what they have done right and if any of it can work in your situation.
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They also rode out the 2008 financial crisis with relative ease compared to most other countries. While some countries implemented strict austerity measures and others thought they were shielded with low debt to income ratios, Australia came out smiling the other end with none of that.
Comparing Australia to Canada
There is actually quite a lot we have in common with our cousins all the way on the other side of the world. Climate not being one of them. Here are just a few factors:
- Both countries run on a democratic socialist system, although Canada could be considered leaning more to socialist policies than Australia.
- Both enjoy some of the best living standards in the world and regularly features cities on the world’s “Best cities to live in” lists. Melbourne currently holds the top spot.
- They are ranked side by side as the 12th (Canada) and 13th (Australia) largest economies by GDP.
Among developed nations, Australia has the second highest household debt-to-GDP ratios in the world. Currently, it stands at 123% which is only behind Switzerland at 128%. Switzerland in the lead doesn’t say much either as it is a very small country with a unique economy. Closer to home, Canada’s household debt-to-GDP is only now at around 110%.
While Canada is also one of the few countries that didn’t suffer greatly because of it, we still recorded three consecutive quarters of negative growth in the aftermath. This while Australia didn’t even go into recession.
Another difference between the two nations can be found in their credit policies. Australia’s government has been promoting ever more credit expanding policies (especially in the aftermath of the global financial crisis in 2008) to their citizens while Canada has leaned more towards tightening access to financing such as mortgages and loans from traditional financial institutions or banks.
Recently, Canada’s government has been running budget deficit policies in a bid to stimulate the economy as well as keep the housing market from crashing. Economic conservatives are quick to dismiss these policies as the ultimate evil. However, what is usually a make or break factor is what the end-consumers do with the new capital or financing they have.
If they spend newly borrowed money poorly without smart investing it won’t end up back in the economy stimulating other sectors. If it is invested well and put to good use it has the capacity to be a positive influence on the economy.
We should look to our friends down under with hope that the current policies can and have been shown to work before. We should just be patient and not panic just yet.