The Australian Economy and the Global Downturn Part 2: The Key Quarters

The Australian economy performed better than most other advanced economies during the global economic downturn that followed the Global Financial Crisis. This paper looks back at the two key consecutive periods during this episode - the period of global contraction and the early period of global recovery - providing detailed information about how the economy evolved during this episode and drawing inferences from the data about what factors might have been behind the economy's resilience. It concludes that the strong performance of the Australian real economy during the key quarters of the global contraction largely reflected the strength of the Australian financial system, the rapid deployment of fiscal stimulus measures, the first effects of a significant easing in monetary policy and a pickup in demand from China which partly offset pronounced external weakness elsewhere. The performance of the Australian economy during the early stages of the global recovery reflected the shift in the structure of fiscal stimulus from transfers to direct expenditure measures, the impact of monetary policy easing on household consumption and business investment and the rapid recovery in Australia's major trading partners. Finally, it concludes that the influence of these different factors was likely to have been mutually reinforcing.