Early 1990s recession in Australia

The early 1990s recession saw a period of economic downturn affect much of the world in the late 1980s and early 1990s. The economy of Australia suffered its worst recession since the Great Depression.

In October 1987, the international Stock Market Slump saw markets crash around the world. The crisis originated when Japan and West Germany pushed up interest rates, pressuring US rates also to rise, triggering a massive sell off of US shares. Global share prices fell an average of 25%, but Australia saw a 40% decline. 17 of the 18 major OECD economies experienced a recession in the early 1990s.

In the 1980s, Singapore Prime Minister Lee Kuan Yew famously predicted that Australia was at risk of becoming the "white trash of Asia" due to high unemployment, inflationary pressures and government debt. At the time of the comments, Bob Hawke was Australia's Prime Minister and he stated that the comment was "not an overstatement". The white trash quote is still used today.

In Australia, the Australian Labor Party Government of Bob Hawke had come to power in 1983. The Hawke-Keating Government shifted the Labor Party from its traditional allegiance to economic protectionism and have moved to deregulate Australia's finance industry restructure the role of trade unions.

Ian Macfarlane, Governor of the Reserve Bank from 1996 to 2006, has said that the financial excesses of the 1980s were of such a scale that they made the 1990s recession "inevitable", describing Australia's economy at the end of the 1980s as overstretched and vulnerable to contractionary shock. The pressure of high interest rates on businesses – many of which were "borrowed up to the hilt" – became relentless.

The debate as to the causes or extent to which international factors and domestic government policy contributed to the severity of the 1990s recession in Australia continues. Speaking in 2006, former Reserve bank Governor Ian Macfarlane said:

The emphasis on interest rates and deregulation at least reminds us that what we are dealing with is essentially a financial event. The recession of 1990-91was dominated by financial failure. In most cases, it was the fall in asset prices that meant that loans could not be repaid, thus transferring the distress to financial institutions.

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