This speech by Greig Gailey titled ‘Looking Past the Downturn’ was delivered to the Committee for Economic Development Australia (CEDA) on 1 April 2009
The Challenge of the Downturn
Australia is entering its first downturn in 17 years.
The sheer speed and severity of the downturn comes as a great shock – to business, to governments, and to the broader community.
For Australians under 30 this is the first downturn they will have experienced in the whole of their working lives.
Few of us saw it coming. The warning signs were there, but almost no-one predicted that a collapse of confidence in the sub-prime mortgage market would create such global damage.
The seeds of this recession were fairly clearly sown on other shores, primarily in the United States, where loose monetary policy run over many years fuelled an unsustainable debt-funded boom.
This recession is not primarily of our making, but that does not mean that we can avoid it. The global nature of today’s world means that the contagion has spread far, wide and fast.
For us, the collapse in commodity prices will be particularly challenging. When world coal and iron ore prices tumble, our national income inevitably shrinks.
Cracks are also appearing in some vulnerable sectors of the Australian economy where boom times disguised their fragility. The downturn is demonstrating that their long-term prospects may be poor.
For those of us old enough to remember earlier recessions, this downturn has many similarities. It also has some significant differences.
Probably the most striking of these differences is the integrity, or lack of it, of the international banking system.
This is a worry, as recessions triggered by financial crises tend to be deeper than ‘normal’ recessions.
Nevertheless, Australia enters the current difficulties in better shape than many other nations.