It feels like only yesterday we were commenting on the spectacular economic rebound from the peak of COVID-19. How did things go so bad so fast? And how can Australia bolster our economic defences?

If you thought things deteriorated quickly, you'd be right. Within the space of just six months, the forecast for next year's gross domestic product growth for the world's rich economies has been slashed by more than half.

Germany and Italy are forecast to go into recession. The growth forecast for the United Kingdom has been slashed by three-quarters. It's even worse for the euro area. With growth rates this low, it wouldn't take much to knock more countries into recession.

The only thing going up is inflation. Global inflation is forecast to double from 2021 to 2022. This is a massive increase in the cost-of-living.

Governments can't do much to help given any meaningful support risks stoking more inflation.

Perhaps it's not surprising the global economy is struggling. There are a lot of things working against it.

Central banks are raising interest rates at the rate of knots. Their actions are necessary to cool off inflation. But they risk killing the patient in order to save them.

Russia's illegal invasion of Ukraine isn't helping. It's put more upward pressure on prices, has spooked investors and delivered big trade and energy restrictions that are wreaking havoc in Europe and beyond.

The long-tail of COVID-19 continues to impact supply chains, workforce absences and confidence.

What does this mean for Australia?

Many international investors don't look at Sydney to assess the health of the Australian economy. They look at Shanghai. And things aren't looking great.

China's GDP growth forecast for next year was cut by a quarter. China has had a spectacular fall from grace. It used to boast growth rates of 10 per cent. Now it's lucky to deliver 3 per cent.

China's COVID-zero policy has wreaked havoc on its economy, something President Xi Jinping has just recommitted to. It's property sector - which represents a fifth of its economy - is rapidly weakening.

A weak China means reduced demand for our exports. China is also critical to the global supply chains our businesses and households rely upon.

It's bad news for the budget, too. A large chunk of tax revenues for federal and state governments come from this international demand.

What can Australia do to weather the storm?

Australia's economic defences aren't what they used to be. When the world economy gets into trouble, our exchange rate falls to make our exports cheaper. Workers hit by the global downturn switch jobs. Old businesses are replaced with new ones. Investors shift their money into new areas.

Monetary policy and fiscal policy cushion the blow. The Reserve Bank cuts interest rates and the government undertakes fiscal stimulus to support demand while the economy gets back on its feet.

These are the mechanisms that shielded us from the Asian financial crisis and global financial crisis. They are all much weaker than they were.

The government has less fiscal firepower. The Reserve Bank has less room to move in cutting rates. Both have their hands tied by inflation.

Fewer workers are shifting jobs. The rate of job switching has fallen by a quarter since the mid-2000s. Any international shocks will result in higher unemployment as a result.

The rate at which new firms are being created is falling, too, and the leader board isn't changing. The probability of a market leader being displaced from the top has declined by around 7 percentage points since the mid-2000s.

Even our exchange rate will be less helpful if the rest of the world is moving in the same direction with their interest rates.

If we want to bolster our economic defences, we need to do at least three things.

First, we need a sensible budget next week. A big spending budget would see fiscal and monetary policy pulling in opposite directions, risking a UK-style market backlash. Now is the time to build fiscal buffers to ease inflation and be better prepared for the next crisis.

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Second, we need to remove barriers to new firms. This means reducing regulatory barriers faced by start-ups, scrapping non-compete clauses, reforming state and territory planning and zoning laws and making it easier for entrepreneurs to get a visa to Australia.

Third, we need to make it easier for people to switch jobs. We can do this by harmonising and reducing occupational licencing restrictions across jurisdictions, boosting the social safety net, increasing supports for retraining and reskilling and reforming inefficient taxes like stamp duties to make it easier for people to relocate.

Third, we need to strengthen our international trade links. Despite all the global gloom, one part of the world is still looking pretty good.

South-east Asian countries are continuing to grow at a respectable 5 per cent. This is yet another reason to bolster our trade links with these countries through an expanded regional comprehensive economic partnership - Asia's flagship trade agreement - and by abolishing our remaining tariffs.

With the world looking shaky, now is the time to strengthen our economic defences. The best time to do this was 10 years ago. The second-best time is now.