It’s rare in politics or economics to get clarity on major issues or debates. One number can never provide that, but if any number could, it’s the one that emerged from the ABS today — 0.4%, in black, rather than red.
For the moment, red is the appropriate colour for the faces of the many economists and forecasters on Monday who were tipping a fall, even if they hastily revised their forecasts into positive territory yesterday.
For the Government and Treasury, this is as close to vindication of its stimulus approach as it will get. The retail sales numbers have supported it. The building numbers have supported it. Even the employment numbers last month supported it, even if no one including the Government believed them. But now the GDP numbers show unarguable growth. There’s not even a backward revision of previous quarters, except for a marginal decrease in December to -0.6%, which was offset by the same increase for the September quarter.
Most remarkably, non-farm GDP actually grew faster than GDP, at 0.5%. We can’t even thank the cockies for keeping us out of recession.
It’s only one number, and subject to future revision. But with more stimulus to roll out into the economy via the extension of the home owners’ grant, the infrastructure component of the second stimulus package, the big-ticket infrastructure projects announced in the budget and what’s left of the RBA’s rate cut drop, the chances of future negative growth appear slim, although another external shock could confound everyone’s hopes.
And the more important questions is exactly how the impact on unemployment will play out, given those numbers relate to actual human lives.
Nevertheless, this is what Treasury was aiming for when it told the Government how to craft its stimulus packages. This is why the Government went early and hard, why it tried to be “ahead of the curve”. Australia is now one of two developed economies with positive economic growth (S. Korea, who also went the stimulus route, is the other). And the proof is in the composition of the numbers. Imports are the biggest growth component (despite our suddenly-impressive trade performance). That means retail, which is one of the two sectors the Government bombed with cash in the December and March quarters.
For once the Government’s positive spin will be well earned. It took advice on how to avoid a recession and acted accordingly, and it worked. It’s just one number, and it’s only a technical definition of recession anyway, but the psychological impact will be significant. There’s even a possibility that the Government went a little too hard, and may have to think about when to pull back on stimulus, but this is not an exact science, and better to have over-stimulated than under-stimulated.
As for the Opposition, which wanted less or, depending on whom you ask, no stimulus, they’re up a particularly foul creek with not even a matchstick for a means of propulsion. The consequences of their opposition to the second stimulus package will continue to play out now that the Government can claim hard evidence that it has worked effectively. What can Malcolm Turnbull ask today? Whether 0.4% is evidence that the Government shouldn’t have spent so much propping up the economy?
In any event, officers in Treasury and the RBA should enjoy a celebratory cup of tea this afternoon. They’ve earned it.