Australia’s position in the international economy deteriorated at the beginning of the 1990s because the developed industrial countries entered economic recessions that were followed by only hesitant recovery. Average real economic growth in the OECD group of developed economies slowed from 1991 to 1993 but then resumed at a brisker pace to 2000. The recovery was somewhat slower than that of the mid-1980s, however. Another slowdown at the turn of the century was followed by an even weaker recovery, with average growth in the OECD just below 3 per cent in the period 2003–07 (Table 12.1). Governments pursued economic policies that kept economic growth subdued so as to avoid the inflationary conditions of the 1980s. They were largely successful in this: during the 1980s recovery, inflation had averaged 8 per cent across the OECD economies, but during the mid-1990s recovery, inflation averaged just under 5 per cent. And in the next recovery – which was the slowest of the three – inflation was barely 2.5 per cent.

Keeping economic growth subdued in order to curb inflation meant that unemployment was slow to come down. It peaked at 8 per cent in 1993 – the same level it had reached in 1983 – and then declined slowly but steadily, except for a slight rise in 2003. After 14 years, in 2007, the average unemployment rate for the OECD was 5.7 per cent, its lowest for 28 years. The developed economies thus overcame the inflationary pressures of the 1970s and 1980s, but at the expense of slower increases in real living standards and higher rates of unemployment. World trade slowed in the early 1990s from 8.2 per cent growth in 1988 to 4.3 in 1991, but did not contract – largely due to the continued growth of China, and other countries in East and South-East Asia. World trade fell below 4 per cent growth in 1998 and 1.1 per cent in 2001, but then expanded by nearly 9 per cent per annum to 2007. As shown in Figure 12.1, world trade grew faster than world output in all years except 1985 and 2001 until the onset of the global financial crisis in 2008. In this way, it acted as an engine of growth for the international economy. International trade relations were advanced by the delayed completion of the Uruguay Round of GATT in 1993 and the creation of the World Trade Organisation (WTO) in 1995.