The Economic Ashes — England versus Australia

It’s the most important part of the 2015 sporting calendar. Spread over two months, two teams pit themselves against one another. It’s a battle royal over 25 days of play.

At stake is a tiny little urn (reputedly) full of a burnt cricket bail. But the reality is that what’s at stake is something far greater than any trophy can provide.

It’s Commonwealth bragging rights.

The Ashes is the greatest test series in cricket. It’s a fierce rivalry between England and Australia. In fact, I would suggest it’s the greatest sporting rivalry on the face of the planet. And this week the latest Ashes series kicked off in Cardiff.

Four more tests will follow in London, Birmingham, Nottingham and back to London again.

When an Ashes series is on, I literally can’t go anywhere in this country without someone saying to me, ‘Oh I bet you’ve been watching the cricket then…’ as soon as they hear my Aussie accent.

The benefit of this is Australia currently ‘holds’ the Ashes. We won the last series of test matches in Australia, 5-0. The English didn’t even win a single match.

Historically it’s pretty even when it comes to series wins.

Of the last 68 series (going back to 1882), England has won 31 (45.6%) and Australia has won 32. There were also five drawn series (7.4%). I might note England won 11 of the first 12 series, from 1882 to 1897…

Hopefully Australia can hold on to the Ashes this year. It’s going to be tough to beat England on home soil, but fingers crossed they can.

However if England wins this series I’m going to have to deal with abuse for the next two and a half years (until the next series).

I can’t deal with that. So to prepare myself, I wanted to see what else there was that I could throw back in debate about England versus Australia rivalry.

And where better to look than at the economic position of the two countries?

Hence I’ve detailed below what I call ‘The Economic Ashes’.

The rules

Just like the five test matches that determine a series win, I’ve outlined five key metrics below. Market performance, GDP per Capita, Unemployment Rate, Terms of Trade and Government Debt to GDP. Whoever wins the majority of the ‘tests’ below wins the series. Simple.

Also I don’t have statistics going all the way back to 1882. In fact, I’m pretty sure that GDP per Capita wasn’t even measured back then. So instead we’ll look at the modern era, since the turn of the century; the last 15 years from 2000 to 2015.

Also, technically in the comparisons below I’m comparing Australia to the United Kingdom, not just England. But their cricket side has a New Zealander and a Zimbabwean in it, so let’s not get too fussy…

First test: stock markets

What better way to start a UK versus Australia comparison than with stock market performance? Here we’re taking the ASX All Ordinaries and putting it up against the FTSE All Share index. These both represent the bulk of all stocks listed on the respective markets, making it as fair as possible.

Let’s say you had $1,000 (let’s leave exchange rates behind here) to invest in 2000. If you put it in the ASX All Ords, by today you’d have $1,673.10.

If you had invested it in the FTSE All Shares you’d have $1,154.2.

Stock Market (ASX All Ords versus FTSE All Share).

Source: Google Finance

That’s a resounding win for Australia! First test goes to the Aussies.

Second test: GDP per capita

One of the fairest ways to compare economic performance of countries is to look at GDP per capita. That effectively says what kind of growth each country is achieving per person. For fair comparison here the figures are in USD.

In this face off Australia starts at a base of around US$31,000. Over the 15 year window it grows to US$38,000. That’s a gain of 22.58%. Not a bad innings…

Then there’s the UK. Starting at a base of $35,500 the UK finishes up at US$41,000. That’s a gain of…15.49%.

GDP per Capita. Source: Trading Economicse

Another comfortable win for the Aussies. If this was a real cricket test, this one would have been over by lunchtime on the fourth day.

Third test: terms of trade

The terms of trade (ToT) are the value of a country’s exports relative to their imports. This is actually a far more complex area than I’m giving it time for right now. But for simplicity, if your ToT is greater than 100 then you’re making more from exports than you expend on imports. The opposite applies if the ToT is under 100.

And what you see below tells a fascinating story. Back in 2000, Australia’s ToT was a paltry 60. Then riding the back of the mining boom and an appreciating currency, the ToT marched all the way to just over 100. After the effects of the GFC, it continued to a whopping 119. All up over the last 15 years Australia’s ToT has been over 100 for around three years.

The UK has had a far higher average ToT over the last 15 years. Back in 2000 the UK was around 97. It hovered around the 90s for a while, breaking over 100 in 2003. Ever since it’s been around the 100s pretty consistently.

All up the UK has eked above 100 for around six years.

Terms of Trade. Source: Trading Economics

A ToT over 100 is preferable as the economy accumulates capital. And for that reason the winner of this test is England.

The all-important fourth test. A win here would hand the Aussies the Series. A lose squares things up going into the final test.

Government debt to GDP is a telling statistic. The lower the better. As you’re probably aware, a low figure means a country produces and sells sufficient goods and services to pay its debt.

The higher a debt to GDP the harder it becomes for a country to repay its debts. And as you’re now seeing with Greece, there is a possibility of default. That has pretty dire economic outcomes.

Just as a point, Greece’s debt to GDP is around 177%. And if you were worried about other nations in that ballpark, throw in Italy (132%), Portugal (130%), Ireland (109%) and…the US (101.53%). Of course, just because a country has a high ratio doesn’t mean it’s the end. It just means it has to produce a lot of GDP just to pay its way. That’s why Greece is in dire straits; it doesn’t produce much GDP.

Anyway, the lower the better. No matter how much GDP you produce. And here there’s one clear winner when comparing Australia to the UK.

Australia’s government debt to GDP is currently around 30%. Back in 2000 it was around 20%. The current figure is the highest it’s been in 15 years. Thank you mining boom.

On the other hand, the UK has racked up some debt the last few years. Back in 2000 it wasn’t too bad at around 40%. But it’s been on a long term uptrend and now sits at its highest point, at 89%.

Government Debt to GDP. Source: Trading Economics

The winner of the fourth test, and clinching the series early, is Australia!

Fifth test (dead rubber): unemployment

A dead rubber means the result is irrelevant to the overall series. Even if England were to win it, it makes no difference to the overall outcome.

But for argument’s sake, when it comes to unemployment it’s actually pretty close.

From around 2000 to 2006 the UK actually had a lower unemployment rate than Australia. But then, again thanks to the mining boom, Australia streaked to the lead. And for about the next eight years Australia had a lower unemployment rate. The last year has turned things around again. And the UK has had an unemployment rate down around 5.5%, while Australia’s has been hanging around 6%.

Although a dead rubber, I’d suggest this one’s too close to call and likely a draw. The reality is it’s probably a wash out. Rain came in and play had to stop. So we’ll give it a draw.

Unemployment Rate. Source: Trading Economics

Series conclusion

Of course all this is a little bit of fun to look at the differences between the two countries over the last 15 years. And you can distinctly see differing fortunes at the start of the 2000s, around 2008–2014 and then another change of fate in the last year and a bit.

Nonetheless, if the Aussies do lose the actual cricket Ashes it’s not all broken dreams. We’ve clearly won the economic ashes over the last 15 years.

However, the next 15 years might just tell a completely different story. Perhaps it will be Australia that loses the economic Ashes. But if that’s the case, my bet is we’ll probably hold the cricket Ashes. And let’s be honest, that’s the one that really counts…isn’t it?


Sam Volkering

Editor, Money Morning

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