Before the coronavirus crisis struck, Australia was enjoying its 29th year of consecutive economic growth.
The «lucky country», so defined due to its impressive record of sound economic data, is an outlier in the Western world. In the USA, for example, there has been a crisis on average every seven years.
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With a population of more than 25 million people, and the 19th largest economy in the world, Australia is far from being one of the tiny, blessed countries such as Monaco or Lichtenstein.
Having entered the current crisis with a government debt on GDP of 40%, Australia cannot even be accused of having inflated its growth through unsustainable public spending, like some Eurozone countries did before the Euro-crisis.
The tremendous growth record Australia experienced during the past three decades is the result of a combination of two factors: Australia’s abundance of mineral resources and its proximity to China.
Natural Resources And Geographical Convenience
Coal and iron ore make up more than 40% of Australia’s exports. Gold accounts for another 6.5%; aluminium and copper represent 3% and 2% respectively. Even if it is not considered an major oil-exporting country, oil and gas make up another 10% of Australian exports.
Where do all these materials go? A huge chunk ends up in China, which absorbs 36% of Australia’s exports.
China has been growing at double-digit rates for decades. Its hunger for mineral resources, that the country needed to build its infrastructure and real estate, drove constant demand for commodities such as iron ore, coal, petroleum.
Australia, a resource-rich nation with a well developed mining sector and geographically convenient location, was the perfect supplier of raw materials to China.
The Economic Link With China Backfires
The link between the two countries became even more apparent during the current crisis. This is the projected growth rate of Australia’s GDP:
This, instead, is the contraction observed by China at the peak of the pandemic.
Essentially, it is the same amount.
Australians did not seat on their hands while collecting checks from the Chinese during the country’s record growth. They developed a world-class infrastructural and transport network that will give Australia a competitive advantage for years to come, especially as the use of new resources such as LNG intensifies.
However, the country’s sharp economic contraction is a historic moment and has highlighted the dangers of being too interconnected with China. It could backfire again, should economic activity in Asia slow down in the future.
Globartis Research Center
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