The lucky country

The Australian economy has reached a major milestone as it enters its twentieth year of economic growth.

When you think about some of the obstacles the economy has faced during this time, the global financial crisis, the dot.com bubble and the Asian crisis, this is a stellar effort.

Speaking at a recent address to a regional business council, Reserve Bank of Australia deputy governor Ric Battellino said Australia’s growth record is “unprecedented both in Australia’s economic history and among other developed economies over the period.”

After recovering from the early 1990s recession, the Australian economy has grown in every quarter since September 1991 except three and posted positive annual growth every year. Mr Battellino said this period of growth is the longest recorded for Australia for at least the last century.

“No other developed country has experienced uninterrupted growth over the past 20 years,” said Mr Battellino. Many countries suffered consecutive periods of negative growth following the 2001 dot-com bubble and global financial crisis.

How did Australia achieve its remarkable performance record?

Part of the growth can be attributed to Australia’s population growth and the advancing Chinese economy, particularly over the last five years, where our proximity and resources have provided us with a natural competitive advantage.

Mr Battellino believes these two factors are only part of the equation. In fact, it has not all been smooth sailing for our Asian trading partners over the last twenty years. During this time, Japan has suffered subdued growth and many of our other Asian trading partner economies suffered from the Asian financial crisis in the early 1990s.

Mr Battellino believes two important factors have contributed to our growth and made the Australian economy more resilient to external shocks. “These are the increased flexibility of the Australian economy and the pursuit of prudent and disciplined financial policies,” he said.

The floating exchange rate has played a major role in stabilising the Australian economy said Mr Battellino. Reforms to our competition and industry policy, which have made our businesses more globally competitive, labour markets and financial system have also supported our economy and productivity. The Reserve Bank of Australia estimates that these reforms added an additional 1.5 per cent output per year to our economy during the 1990s.

Disciplined economic policies and a significant reduction in government debt has positioned Australia ahead of most developed economies in terms of government finances.

“Monetary policy helped keep inflation low, providing a stable environment in which businesses and households could plan and undertake their economic activities,” said Mr Batellino.

Looking forward, Mr Batellino said: “It is reasonable to expect that further growth lies ahead. However, with the economy now operating close to its capacity, it will take further improvement in productivity and disciplined policies for this growth to be sustained.”