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Chief economist update: Australia's third arrow

"We are one, but we are many
And from all the lands on earth we come
We'll share a dream ..."

- The Seekers

Yes Virginia, we, Australians all, are one in anticipating Christmas to come on October 6 this year - the day when most expect the Reserve Bank of Australia (RBA) and Treasury to be handing out good tidings.

October 6 is RBA meeting day, the day financial markets expect the Australian central bank to lower the official cash rate from a record low 0.25% to 0.1%, and its three-year bond target and Term Funding Facility (TFF) to below 0.25%.

October 6 is also the day when Federal Treasurer Josh Frydenberg is expected to announce a growth boosting budget that includes bringing forward income tax cuts, new infrastructure and energy infrastructure spending, business incentives including a wage incentive scheme to encourage hiring.

With both monetary and fiscal policies going for growth, and COVID-19's second wave appears to have been waved bye-bye from Australian shores, the recession wrought on us by the coronavirus should be shallow and short-lived.

This becomes not only possible but highly probable - to borrow from ex-Japanese Prime Minister Shinzo Abe - with the aid of a "third arrow".

Its name is China. The Australian economy would have been in a recession (like many other countries including the US, Europe and Japan) during the global financial crisis had it not been for the double-digit growth in China (at the time) and its voracious appetite for our goods and services.

It's happening again. Despite the recent diplomatic tensions between Beijing and Canberra, the Middle Kingdom's still supporting Australia's economy through trade.

The Australian Bureau of Statistics' (ABS) 'International Merchandise Trade, Preliminary, Australia' report shows China remains our top export market - accounting for nearly 42% of our total goods exports in August.

Rounding up Australia's top five export markets: Japan, our second biggest export market, buys much less (11.1%); South Korea 5.7%; the US 5.4%; and, India 3.7%. China even purchases more "Made in Australia" goods than the OECD group of nations put together (33.2%).

While Australia also buys most of its imports from China (27.7% of total imports), it has a bilateral trade surplus with Beijing (A$5,241 million as at August).

With the Chinese economy dodging the pandemic-induced global recession and expected to expand by 1.8% this year and by 8.0% in 2021 (OECD Economic Outlook, Interim Report September 2020), it'll go shopping for more of our exports, not only goods but also services - when Australia re-opens its international borders.

Read our full COVID-19 news coverage and analysis here.

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