So who gets the credit for yesterday’s growth number?
Not the Government, according to Malcolm Turnbull and his sidekick Joe Hockey. According to them, the GDP figure yesterday was mainly composed of export growth, and that had nothing to do with the Government’s stimulus packages. Cheated of the opportunity to declare a “Rudd recession”, they instead went for the Rudd-free recovery. They even had a little picture, a bar graph showing the size of each of the components of that infuriating 0.4% growth figure, with exports nice and big compared to the rest, which were negative, and “a modest increase in consumer spending.”
And not really the Government either, according to the Government.
“The good figures that we see for the Australian economy today, underpin the fact that Australian business, small business, tradies, workers, unions, have been out there doing their bit for the Australian economy,” said the Prime Minister. “And that’s a tribute to them.”
It was only after paying suitable tribute to the country’s working folk that he suggested the Government stimulus strategy also played a role.
Rudd might have been playing at false modesty, but it was the Opposition that was talking utter rubbish with their bar graph comparing exports and “a modest increase in consumer spending.” The bit they left out was that consumer spending, which grew at 0.6%, doesn’t halt at 0, but can go negative. The more negative it goes, the more it reduces GDP.
The counterfactual, if the Government had done nothing — which now seems to be the Coalition’s preferred position — would have meant that that “modest increase in consumer spending” would have been a whopping decrease, which would have been more than ample to wipe out any growth from exports and ensure a contraction in GDP. That “modest increase in consumer spending” in fact was a huge increase on the significant contraction that would otherwise have been the case.
To get to the point of all this arcane debate over which two-fifths of three-quarters of the 0.4% could be allocated where, it meant a lot of Australians have jobs now that would not have had them. Regardless of the debate over whether and how we’re in recession, that’s the critical issue.
Some Coalition backbenchers were taking this further in Question Time, calling out that the growth was all due to farmers and the breaking of the drought. Sorry chaps, but while agriculture exports were up, non-farm GDP grew faster than all GDP. Please check your numbers before interjecting.
The Opposition’s central claim, that the “cash splash” was being saved rather than spent, which dominated Malcolm Turnbull’s response to the December national accounts, has been demolished. Yesterday’s accounts revised the December household saving ratio down more than 1.5% to 6.9%, and estimated the March household savings figure at 1.8% — although you wouldn’t know that from today’s media coverage. It’s not surprising, given the main positive contributor to expenditure on GDP was imports. Someone had to be buying them.
So much for cash splashes being put in the bank — a subject on which Tim Colebatch declared in March “debate over”. It certainly looks over, but not in the way Colebatch suggested.
Having got the timing of the first “plasmas and pokies” handout right, the next test for the Government is whether the bulk of the February package, aimed at small and medium-scale infrastructure (I point blank refuse to use that shovel word), can slot in as the effect of the cash handouts and interest cuts fades and keep softening the impact of the recession on unemployment. That is the main risk for a “W” shaped slowdown, and there’s not a lot the Government can do except make sure the Infrastructure Coordinator-General, Mike Mrdak, drives his state and territory counterparts like slaves to get projects moving as quickly as possible.
In the Government’s favour, though, is the likelihood that Treasury has underestimated the impact of the first home owners’ boost and interest rates on housing activity. The RBA has spotted this as well, saying on Tuesday “a pick-up in housing credit demand suggests stronger dwelling activity is likely later in the year.” Treasury predicted in the Budget that housing activity would remain flat.
At some point it would be useful for the Opposition to rejoin the economic debate on sensible terms. They’ve been camped out on the ideological Right, with one or two conservative economists, while the mainstream of the economics profession and the business community have been as one with the Government on the need for stimulus. Yesterday was a victory for the mainstream.