Why a recession is bad but necessary for Australia

A few years ago, when a recession struck almost every OECD country, Australia remained relatively unscathed. But could a recession be necessary for Australia, in its current state?

As the Chinese GDP growth rate slows, Australia must be prepared for inevitable decreases in export revenue. If the demand for exports decreases, an increase in unemployment is almost impossible to avoid. Unemployment, mixed with struggling wages, and a distorted housing market, typically leads to a shocking aftermath.

Before I employ the ‘R’ word, or recession, I’d like to give a brief insight into what a recession really is, and why it isn’t as bad as some make it out to be.

Recession is negative GDP growth for two quarters. No, it isn’t WW3, and it isn’t the end of the world either. In-fact, several economists believe that Australia is overdue for a recession. Why? Because recession creates reform, and it forces politicians to make hard decisions, decisions that they may not have made if the economy was performing perfectly. These decisions are important in the long-term to Australia’s well-being, culturally and economically.

There are some surprising similarities to America in the GFC, and Australia’s current position in the economy. America, did in-fact, go through a downturn, the dot-com bubble, and was left relatively unscathed. Although, one can argue that it was the Federal Reserve’s ability to forecast that downturn and act accordingly, that avoided the potential catastrophe, it is unarguable that America suffered heavily throughout the GFC. However, America took necessary reforms, and has emerged from the recession.

On a final note, perhaps Australia could gain some good out of a recession. A recession isn’t an optimal outcome, but perhaps there is a positive way to think about the situation. There is a big difference between a recession and a depression, and we should definitely avoid the latter.