Why is AUS in a recession and was not in a recession during the GFC? Was it because of China? (1 Viewer)

[moon_princess]

Did Australia avoid a recession in 2008-09 because the Rudd government provided the economic stimulus package at a 'perfect timing'? Or was it because China was rapidly growing and was still constantly importing AUS commodities?

 

[beetree1]

Cant you argue it was both

 

[Zacharia Villegas]

Cant you argue it was both

Absolutely because they were both effective supports to help increase AD of the Aus eco.
1. China was demanding large amount of commodities to build infrastructure and stimulate the eco(Avoid recession)
2. Economic stimulus helped lift the level of AD by giving money out which would be respent (Mutiplier effect)

 

[#RoadTo31Atar]

The biggest difference I noticed is that leading up to the GFC interest rates were very high, I think the cash rate was like 6%, through loosening MP they lowered it to like 3% in a short time frame. This increased AD and with the fiscal stimulus package they both were very effective. This is different for covid because our interest rate was very low to begin with due to low eco growth in the last few years, so MP could not be used to stimulate AD (it could a little but not 3% interest rate cut) which is also why the fiscal stimulus is bigger now than during GFC and we still have a recession. Because MP can't be used effectively anymore is also why I think unemployment increased so much because interest rates can't be decreased further.

 

[Zacharia Villegas]

The biggest difference I noticed is that leading up to the GFC interest rates were very high, I think the cash rate was like 6%, through loosening MP they lowered it to like 3% in a short time frame. This increased AD and with the fiscal stimulus package they both were very effective. This is different for covid because our interest rate was very low to begin with due to low eco growth in the last few years, so MP could not be used to stimulate AD (it could a little but not 3% interest rate cut) which is also why the fiscal stimulus is bigger now than during GFC and we still have a recession. Because MP can't be used effectively anymore is also why I think unemployment increased so much because interest rates can't be decreased further.

I agree that MP was another effective tool in the GFC but when you say that "Because MP can't be used effectively anymore is also why I think unemployment increased so much because interest rates can't be decreased further." I don't agree with that part because the UE increase was inevitable because of the closure of businesses. IMO even with a significant lowering of i/r, there would be very minimal differences in UE.

 

[thinkinghard]

Mostly the demand for commodities from China:

• The resources boom had a larger positive impact on national income than all economic reforms 1980-1990 and new technology combined (from Pearson)
• 15 years after, income per person is 20% higher than the mid-2000s