Today’s national accounts answer a key question for the Government in the lead-up to the May Budget: are we, to use the Prime Minister’s unavoidable phrase, out of the woods? The answer is yes.
Lindsay Tanner and Wayne Swan can now frame the Budget confident that the economy is making the necessary transition from public-supported demand to private demand as the stimulus packages wear off.
Remember today’s figures are for the December quarter — the last quarter in which the stimulus packages will make a positive contribution to growth. From this current quarter on, the scheduled withdrawal of the stimulus measures will start detracting from growth. That’s why the fact that the biggest contribution to today’s 0.9% figure is from private capital formation expenditure is important.
There’s an element of business confidence versus actual business conditions in that expenditure — NAB recently found the former was a lot better than the latter at the start of the year, suggesting businesses have been confident conditions will improve even if they’re not so hot at the moment.
It’s also significant that the Australian economy started that transition at the end of last year, when evidence suggests overseas economies were still struggling out of recession or, in the case of Sweden, falling back into recession for a double-dip.
There’s still room for external factors to affect the economy, particularly if overseas problems drive the dollar up significantly. Perhaps it’s the external environment that continues to make the Government cautious in its rhetoric, but that’s no longer justified by domestic conditions.
So it’s time for the Government to get back to the central task of managing a rapidly growing economy. That means keeping discipline in the fiscal process and accelerating the process of eliminating the deficit. And now they can do that with the confidence that, to use one of Swan’s colloquialisms, they won’t be pulling the rug from under demand.