Josh Frydenberg should have saved himself the inconvenience of a few hours in isolation and issued yesterday’s “ministerial statement on the economy” as a media release.
It added little to his rather uninformative speech last week, except for some economic forecasts that boldly went all the way to the end of June, a mere six weeks away.
There were no fiscal forecasts, just an update to the end of March, showing a $10 billion rise in the deficit up to that point.
No one was expecting the equivalent of budget forecasts. Everyone knows how uncertain things are around the lifting of lockdown restrictions. But last week the Reserve Bank (RBA) readily discussed three scenarios with its own forecasts beyond June, providing a stark contrast to the treasurer’s timidity.
One can only assume that if Frydenberg had ventured beyond June, it would have prompted real questions about exactly what the government plans to do to support the economy late this year and in 2021.
Even under the RBA’s most optimistic scenario, unemployment is still above 6% until late 2021. GDP remains well behind the level forecast in February.
The numbers are much worse under the most pessimistic scenario.
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Yesterday’s National Australia Bank’s (NAB) April survey of Australian business endorsed the idea of a slow recovery.
NAB’s group economist Alan Oster said: “We see a recovery in growth late this year, but even though it could be a solid bounce the level of output is not expected to be recovered to pre-COVID levels until early 2022. We expect unemployment to match this pattern, falling in 2021 but remaining above 7%. This all points to required ongoing policy support for some time.”
NAB’s business confidence survey rose 19 points in April to -46 points, i.e. better, but still a very weak reading. But the business conditions survey which fell by 12 points to -34 points. These are figures much worse than those recorded during the early 1990s recession.
It’s the psychological impact of the pandemic and the lockdown that is now the most uncertain aspect of the trajectory of recovery, both for business and consumers. “We also worry the hit to confidence will have some ongoing impacts to hiring and capex which could see a drag on growth for some time,” Oster said.
Frydenberg noted — albeit confining himself to the June quarter — that “household savings are expected to increase as a result of the restrictions that have been imposed and an understandably cautious approach by households to discretionary spending.”
That won’t stop on June 30. The impact on consumer confidence will persist for months, perhaps years, to come.
If Frydenberg is reluctant to talk about the future, the issue of consumer spending is also a touchy area in relation to the recent past.
Although Scott Morrison has now abandoned his silly “snapback” prediction for the economy, there was always the question of what, exactly, the economy was going to “snap back” to. The pre-pandemic economy was characterised by the Great Morrison Stagnation: falling economic growth, unemployment firmly fixed above 5%, wage stagnation, household spending curtailed, productivity going backwards.
Implicit in Frydenberg’s remark about households is a similar question: even if consumers eventually overcome their pandemic caution, will they simply revert to the behaviour that characterised the Great Morrison Stagnation?
So profound was household reluctance to spend that those tax cuts last year that the government and the press gallery insisted were a major triumph and substantial stimulus in fact led to reduced spending.
No matter how little Frydenberg wants to talk about it, the problem of how the government will respond to persistently high unemployment into 2022 — when the next election is due — won’t go away.
The NAB’s conclusion is that “more action from policy makers will be required — particularly on the fiscal front to assist business with a return to normal”.
While the government is talking about “harvesting” economic reform ideas, floating the discredited big business agenda of company tax cuts and a return to WorkChoices and flagging that it is still aiming to cut off crisis support programs like JobKeeper in September, the stubborn fact is that more stimulus is going to be needed, unless the government gets lucky with a jobs surge well beyond that predicted even under the RBA’s best-case scenario.
That makes Frydenberg’s speeches last week and yesterday particularly pointless. They’re exercises in avoiding the real issue.