Looking back on the pre-coronavirus days of poor single-digit growth, one can only hope that Australia’s pattern of apparent arrogance and complacency will not continue, because exiting stimulus policies requires a heavy dose of humility.
The Australian government said a few days ago that the country has emerged from the economic gap caused by the pandemic, with GDP growth increasing by 1.8% during the first quarter of 2021 compared to the fourth quarter of 2020. The Australian Statistics Agency said in a statement backed by the numbers, The current growth figure is better than expected, although it is down from its revised fourth quarter of 3.2%, putting activity above pre-coronavirus levels.
The mission is a reminder of the days past, after the turn of the century, when Australia’s politicians and executives thought they knew it all. In the past, the country appears to have followed a (magic) formula – based on standards of living in the developed world in a region dominated by vibrant emerging markets – that helped it move forward without stagnation for nearly three decades.
The latest figures come a day after the central bank praised the recovery, indicating that it will decide next month the fate of quantitative easing, in addition to its policy of setting a ceiling on returns on certain government bonds. Some departure from this extraordinary level of support – which was considered a marginal possibility before the pandemic – is needed given the success of the recovery. The Reserve Bank of Australia may choose to keep quantitative easing short, while discontinuing the use of so-called yield curve control, which aims to keep interest rates on three-year sovereign debt close to zero. This will show some poll confidence when withdrawing aid without jumping too far into the unknown.
This frequency is justified. Inflation is still far from stable in the RBA’s target range of 2-3% and such a dramatic break from last year’s policies is likely to boost the Aussie too much. Officials are also concerned about the vitality of the labor market. By the Reserve Bank’s acknowledgment, the recovery has been buoyed both fiscal and monetary, and Prime Minister Scott Morrison is not about to end spending in his government’s budget released last month. Morrison’s conservative bloc, which has been focused on surpluses, will run a deficit through 2025. And the prospect of a national election within a year makes it extremely unlikely that it will be broken up. Australia now has a largely domestic economy, backed by government subsidies, but looks only inward, as the borders are effectively closed. Morrison will not rush to change that, even though the last budget included subsidies for tourism and aviation. The underlying narrative appears to be based on fear that opening up to outsiders will lead to a new outbreak of the pandemic. This is a particularly acute problem because vaccination lags behind many other developed countries. Australia’s policy of eradicating the virus, rather than containing it, means that even small outbreaks will quickly be followed by city or state lockdowns, putting an inevitable barrier to growth. Reserve Bank of Australia Governor Philip Lowe alluded to this in his statement after a recent board meeting, where he said: “One continuing source of uncertainty is the potential for the virus to spread significantly, although this should diminish as more of the population is vaccinated. ». A prominent regional leader said on Wednesday that the lockdown of Melbourne, the country’s second-largest city, would extend beyond seven days, while its 5 million residents faced a fourth shutdown. This stop-and-go frequency means that the journey back to economic normality will be slow.
By all means, Australia is enjoying a revival. But this is not a moment to congratulate oneself. There is nothing unique on the other side of the world that will save the country from the Corona virus.
A writer specializing in Asian economies
Published by special arrangement with the Washington Post and Bloomberg News Service.