This week’s Economist magazine features Australia on the cover with the caption: “Aussie Rules: what Australia can teach the world”. Inside, the text is effusive: Australia is “the wonder down under”, “possibly the most successful rich country”.
How times (and predictions) change!
The article praises Australia’s record of 27 years without a recession. In 1995, four years into this quarter-century-plus of unbroken expansion, The Economist saw a very different outlook for the Australian economy.
Mexico had just experienced a currency collapse and a searing recession, requiring a $US50 billion bail-out from the IMF and the US government. With this economic calamity fresh in mind, The Economist’s senior economist Pam Woodall predicted a similar fate for Australia: “Australia – the next Mexico”.
By 2004, The Economist was asserting that its 1995 comparison with Mexico had been “tongue in cheek”, but claimed credit for having predicted the falling Australian dollar, to which its own over-wrought reporting had contributed. It renewed its gloomy prognosis: “Australia’s economy looks suspiciously like America’s before the (2003) bubble burst”.
What should we make of the change-of-heart? On The Economist’s past forecasting record, it’s tempting to say that it’s now time to start worrying about the Australian economy. That’s the wrong lesson. Financial commentary often sacrifices balance for drama. Unfortunately, financial markets often follow suit, with unnecessary volatility.
Don’t break out the champagne. Keep calm and carry on.
Photo via Flickr user Martin Snicer Photography