The claim



Australia was among a small handful of the world's advanced economies to avoid recession during the global financial crisis. But was this by luck, design, or a combination of both?

A decade on from the start of the slump, the question of whether the mining boom carried Australia through the crisis — mitigating the need for the government's big-spending response — remains a source of debate.

Wayne Swan, who was treasurer during the crisis, has challenged the notion that Australia was carried through the crisis by the mining sector.

"It had nothing to do with the mining boom," Mr Swan said in an ABC radio interview.

Did the mining boom play no role staving off recession? RMIT ABC Fact Check investigates.

The verdict

Mr Swan's claim that Australia's relative economic success avoiding recession during the global financial crisis had nothing to do with the mining boom is over the top.

While mining investment, commodity prices and mining jobs fell during the key period of the global financial crisis, experts told Fact Check that the mining boom placed Australia in a strong economic and fiscal position ahead of the crisis, and helped accelerate the post-crisis recovery.

Lending a hand were a low exchange rate and stimulus spending in China, which helped sustain mining exports during the crisis.

Mr Swan is entitled to say his government's swift and decisive response was a key reason Australia did not follow most of the developed world into recession.

But his emphatic rejection of the role of mining goes too far.

The global financial crisis

The global financial crisis is widely considered to represent the worst economic slump since the Great Depression.

It is often said to have started in mid-2007, precipitated by the so-called sub-prime mortgage crisis in the US.

But it was the collapse of investment bank Lehman Brothers in September 2008 that triggered a new international phase of the crisis, sending stock markets crashing and dragging much of the developed world into recession.

Although the Australian economy performed relatively strongly, it was not unscathed, contracting by 0.7 per cent during the final quarter of 2008.

Overall, however, Australia was a standout performer throughout the crisis. According to OECD data, Australia recorded growth of 1.8 per cent in 2009 compared to the previous year, the second highest of 35 developed countries.

How did Australia respond?

In October 2008, just weeks after the demise of Lehman Brothers, the Rudd government unveiled an initial economic stimulus package worth $10.4 billion and a guarantee on bank deposits.

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This was followed in February 2009 by a second stimulus package worth $42 billion, including one-off payments for families, a school infrastructure program and a program to install free insulation in 2.7 million homes.

Australia's big spending response was seen to represent a classic Keynesian approach designed to maintain household spending, demand and employment.

As the then secretary of the treasury, Ken Henry, put it, the idea was to "go hard, go early and go to households".

The basis for Mr Swan's claim

The role of the mining boom (and strong economic growth in China) in helping Australia through the crisis has long been debated, with some commentators arguing that it mitigated the need for the government's big spending packages to stave off recession.

A decade on from the slump, Mr Swan has challenged this view. In his August 17 radio interview, he said Australia's relatively strong economic performance during the crisis "had nothing to do with the mining boom".

Rather, Mr Swan contended that it was the government's swift decision to put in place its stimulus measures that staved off recession and set Australia apart from comparable countries.

"The mining boom came along later, but at the key period of the recession that emerged around the world there was no mining boom in sight," Mr Swan said.

"The Australian economy would look dramatically different today had we not put in place the fiscal stimulus and the tail of that stimulus through that period. It had nothing to do with the mining boom."

In a speech to the National Press Club later that day Mr Swan expanded on his argument. He said China's growth supported the Australian economy "from 2010 onwards".

"But it had little to do with Australia's performance during the critical year that followed the collapse of Lehman Brothers in 2008."

For the purpose of analysis, Fact Check will assume that the "key period of recession" referred to by Mr Swan in his radio interview was the 12 months following Lehman's collapse (as indicated in his subsequent speech).

In both his radio interview and his speech, Mr Swan refers to comments by Dr Henry, who headed the Treasury from 2001 to 2011 and is considered a key architect of Australia's response to the crisis.

In a statement delivered to a Senate committee in May 2010, Dr Henry said claims by "senior commentators" that the mining industry saved Australia from recession were "not supported by the facts" and were "curious".

Dr Henry said the mining industry, in fact, experienced a "deep recession" during the first half of 2009.

"In the first six months of 2009, in the immediate aftermath of the shock waves occasioned by the collapse of Lehman Brothers, the Australian mining industry shed 15.2 per cent of its employees," Dr Henry said.

"Had every industry in Australia behaved in the same way, our unemployment rate would have increased from 4.6 per cent to 19 per cent in six months. Mining investment collapsed; mining output collapsed."

Defining the mining boom

The mining boom is often described as the biggest resources bonanza since the gold rush of the mid-1800s.

Fuelled by Chinese demand, commodity prices rose sharply from around 2003.

The boom is reflected in the following graph of the Reserve Bank's index of commodity prices. It shows that commodity prices, measured against the currencies of key trading partners, roughly quadrupled from the early 2000s to a peak towards the end of 2011.

The boom was also broadly characterised by a rise in mining-related investment, construction, exports, employment and profits, among other things.

The following graph shows how mining investment started to rise from about the mid-2000s, but quickly accelerated from about 2011, peaking in mid-2012.

There is no doubt that the boom has significantly added to Australia's prosperity. A 2014 research paper put together by the Reserve Bank estimated that by 2013 the mining boom had raised real per capita household disposable income by 13 per cent, raised real wages by 6 per cent and lowered the unemployment rate by about 1.25 percentage points.

The question being examined here, however, is whether it was absent during the key period of the global financial crisis, as defined by Mr Swan.

Assessing Mr Swan's claim

John Edwards, a former financial market economist and Reserve Bank of Australia board member, who is now a fellow at the Lowy Institute, told Fact Check the most direct way to test Mr Swan's proposition was to examine the various components of Australia's economic growth in 2009.

During that year, Australia's real GDP rose by 1.74 per cent.

"We know mining investment made no contribution to that because in that year real mining investment fell by 0.77 per cent," Dr Edwards said.

Rather, the contributions to Australia's economic growth in 2009 came from increased household consumption spending, increased government investment and, to a lesser extent, increased exports.

"Exports helped, and these included mining exports to China, but exports did not contribute nearly as much to overall GDP growth as the increase in domestic spending by households and governments," Dr Edwards said.

Economist Chris Richardson, a partner at Deloitte Access Economics, told Fact Check that, while the stimulus program was "the right thing to do", it is wrong to suggest that mining played no role in Australia's economic performance during the crisis.

"I would say the mining boom did help us. It gave us a degree of pipeline momentum with the big [mining] projects that might have slowed but didn't stop, and it gave us a channel by which China's stimulus was able to flow through to our economy when it came," Mr Richardson said.

The mining boom leading up to the crisis also contributed greatly to tax revenues, allowing the government to build a "magnificent" war chest of budget surpluses, Mr Richardson said.

This, in turn, placed the government in a strong position to inject stimulus spending into the economy when it was needed.

Warwick McKibbin, a former Reserve Bank of Australia board member who is now director of the Centre for Applied Macroeconomic Analysis in the Crawford School of Public Policy at the Australian National University, said he disagreed with Mr Swan's suggestion that the mining boom played no part.

Professor McKibbin said a drop in the value of the Australian dollar, interest rate cuts and stimulus spending in China helped insulate Australia from the crisis.

"The value of exports might have dropped but the quantities continued and have risen since," Professor McKibbin said.

"Our currency fell a lot, which helped our exports. The fiscal stimulus did play a role - the first one was important, the second one was too big."

"The reason the Australian economy didn't go into any recession ... is that our export quantities are strong and the cost of extracting those exports are at the lowest marginal cost in the world so, we are still making a profit out of it."

Professor McKibbin refers to World Bank data showing exports remained relatively strong in 2009, equivalent to 22.5 per cent of GDP, up from 19.7 per cent in 2008.

AMP Capital chief economist Shane Oliver noted that commodity prices did slump during the crisis, while mining investment dipped before resuming the following year.

"I think it is fair enough to say that we weren't protected by the mining boom," Dr Oliver said.

"To some degree we were helped by China. There were two countries that had massive stimulus programs at the time. One was Australia, the other was China, and so our exports to China held up pretty well through that period."

Dr Oliver also agreed with the proposition that mining activity leading up to the crisis had significantly fortified Australia's budget position, providing extra scope for stimulus spending when it was needed.

In assessing Mr Swan's claim, Fact Check also examined movements in key indicators in the year following the collapse of Lehman Brothers using ABS and RBA figures.

Indicator comparisons 2008 to 2009 Mining jobs Mining jobs as a proportion of total jobs RBA index of commodity prices November 2008 176,700 1.64 per cent 158.3 November 2009 168,300 1.55 per cent 121.6 Change -4.8 per cent -5.5 per cent -23.2 per cent Source ABS ABS RBA

Mining total investment 2008 to 2009 ($m) December quarter 2008 10,628 December quarter 2009 9,024 Change -15.1 per cent Source: ABS

Clearly, the mining sector experienced a sharp contraction in the wake of the crisis.

However, it also experienced growth leading up to the crisis, and strong growth immediately after the crisis which turbo-charged Australia's economic recovery.

To suggest the mining boom played no part in helping Australia avert a recession ignores the positive role this growth played in insulating Australia during the crisis.



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