The Australian Economy at a Crossroads — Can We Steer Clear of Recession?

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The Australian economy weathered a tremendous storm when faced with the Global Financial Crisis. But can we prevent a recession in the future?

As long as Australians remain focused on achieving economic stability, intelligent financial strategies and persistent vigilance of any potential issues should keep Australia above water – and far away from troubled seas.

From 2007-2009, the Global Financial Crisis caused numerous countries to enter a recession – but how did it start? The US housing market began its downturn in mid-2006. It was coupled with an expanding pool of borrowers who could not make their loan payments, ultimately propelling the GFC.

In the summer of 2007, lenders and investors experienced significant economic losses due to an inability to sell repossessed homes at prices higher than their outstanding loan balances. A lack of confidence in mortgage-backed securities products prompted active selling by investors who already held them.

The US investment bank Lehman Brothers’ September 2008 bankruptcy (the largest in US history) caused a spike in financial struggles. Simultaneously, other banks faced collapse or liquidation, resulting in an international economic panic and market chaos.

The Global Financial Crisis left the world unstable and unsure, but Australia stayed afloat. Despite one-quarter of negative GDP growth at the end of 2008 (-0.5%), we avoided entering a technical recession altogether due to various factors that kept us strong amidst turbulence elsewhere.

“It was a tightrope walk for us in Australia,” said Prime Minister Anthony Albanese. “We were able to take decisive action and emerge from the crisis with a strong economy — something many other countries weren’t as fortunate to do.”

The Australian banking system was sheltered mainly from the US housing market crisis due to the healthy profits made in domestic lending. 

Since high-risk loans were a minor part of loan portfolios, Australian Prudential Regulation Authority’s (APRA) stringent emphasis on creditworthiness preserved banks’ stability. 

China’s quick economic recovery following GFC contributed significantly to Australia’s flourishing economy through immense resource exports.

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