Australia will probably avoid the worst of the economic crisis

Australia will probably avoid the worst of the economic crisis
A sales assistant is seen through the window of a retail store displaying a job vacancy sign in central Sydney, Australia, December 5, 2016. REUTERS/Steven Saphore

Experts have been saying for a while now that a recession is likely in several major countries. Bloomberg’s poll of economists says the chance of recession is 50% in the US and 60% in the UK. With continued stringent COVID restrictions in China, countries around the world are bracing for further increases in inflation.

But, Australia has a bit of a special sauce; economists say there’s only a 25% chance that a recession will occur in the country, with experts expecting a “soft landing" rather than a recession.

See, Australia has a relatively weak currency at the moment. Of course, there are cons to having a weak currency, but one of the big pros is that you can sell your stuff on the global market cheaper and get more sales. But Australia also has pretty strict export laws, meaning it’s not that easy to sell things outside the country.

The result is that Oz is producing lots of things that get sold domestically, and the things it does sell abroad (like coal) can be sold at a pretty high margin. On top of that, it’s done a great job keeping people employed throughout the pandemic, so it isn’t dealing with an employment gap like other countries.

Key comments:

“We have a tailwind from our terms of trade that other countries just don’t have," said Alex Joiner, an IFM Investors’ chief economist. “The export of LNG and coal have been extraordinarily beneficial. Our budget position will be in a much better position than many advanced economies."

“We expect a soft landing, not a recession," said Jo Masters, Barrenjoey Markets’ chief economist. “Australia is both an energy and food exporter, and the Australian dollar is – and expected to remain – below fair value."