The national accounts data was released this morning. The Australian economy has avoided a second consecutive quarter of negative growth, ducking the technical definition of a recession, a message Kevin Rudd and Wayne Swan relentlessly hammered in a celebratory press conference early this afternoon. But economists are divided as to what this actually means, with trend data still lagging.
Crikey spoke to some of the country’s brightest sparks to interpret the data.
Tim Toohey, Goldman Sachs JB Were: The fact that it’s plus 0.4 growth makes it quite unlikely the Treasury’s outcomes will be achieved. Indeed, the consensus that have been increasingly negative over the last three months will have to reverse course. A cursory glance suggests a turn in the cycle will contribute to growth through the second half of this year and into 2010, in conjunction with a pick-up in dwelling activity and robust consumption. We’re not expecting any more negative quarters this year.
Rory Robertson, Macquarie Bank: Most economists were looking for a positive result today. It’s surprising that the GDP could have risen in the quarter. But the general story is the Australian economy has held up very well in the face of the most savage downturn in generations. And the reasons for that are, one, the Reserve Bank has taken interest rates to a generational low. Two, the government has been more aggressive than ever before in supporting the economy through expansion. And, three, the exchange rate fell dramatically after global growth collapsed in the wake of Lehman Brothers’ demise.
Steve Keen, University of Western Sydney: The main thing that’s caused it to go positive is the change in net imports, and that’s the thing I’m finding a bit weird — I’m not sure how people are interpreting it. And how do imports contribute to growth? By falling substantially. So, take a look at the figures that came out yesterday, the fall in imports was about $9 billion, whereas exports fell by $3 billion. So, the fall in imports outweighed the fall in exports — if that wasn’t there, we wouldn’t be having positive growth. Imports have slumped so much, it looks like our economy has grown. But it’s still a line ball positive, because the trend is still negative. So, I think it’s the Australian government’s investment in spending combined with the drop in imports makes it look positive, but it’s still a sign of a shrinking economy. We’re still in a recession.
Stephen Walters, JP Morgan: We haven’t had technical confirmation of a recession. Now, that’s not a big surprise, given the data over the past few days. We knew the trade numbers, the imagery numbers were looking up, so you can put the puzzle together. Does that mean the economy’s not in a recession? I don’t think so. We haven’t got a technical recession, because for that you need back-to-back negative growth. But conditions are still consistent with a recession. Firms are cutting spending, cutting staff, housing construction is falling, confidence is low, and the government is spending as much money as they can find. We’re still in a recession, we just haven’t had technical confirmation.
I find it increasingly amusing that Steve Keen continues to portray the part of “prophet of doom” even in the face of unfortunate (for him) good news about the economy. Given his dire predictions of 20% + unemployment, massive contractions in spending to pay off debt, drops in housing prices of 40%+ and other equally sensationalist and inaccurate predictions, i’d thought by now he’d at least have the good grace to say things have improved and his earlier predictions were wrong. The fact that again today he hasn’t, shows that media attention and publicity are more important to him than thorough economic thinking. I feel sorry for Kerry O’Brien for getting sucked so completely last year, but I really sorry for his economics students who must be wondering if they are in a journalism class…
So, technically no recession. Ask anybody in business and you’ll find their coalface conditions say we are.
The problem with this technical result is that Rudd and Co will be crowing their brilliance about the stimulus and the vast majority of Australians, who only rely on soundbites and the 6.00pm tv tabloids for most of their news, will think Rudd truly walks on water.