Terry McCrann: Australia’s economy is depending on Victoria
The government ordered us into this recession and it is entirely within their power to order us out. What happens next is up to Victoria, writes Terry McCrann.
Terry McCrann
Don't miss out on the headlines from Terry McCrann. Followed categories will be added to My News.
The government – governments, state as well as federal – ordered us into this recession, the worst since the Great Depression of the 1930s; and it is entirely within their power to order us out.
Indeed, that is exactly what they have done – up to a point. At least, that is, eight of the nine governments in Australia.
That is every state and territory government, along with the federal one, except Victoria.
All on its own, the Andrews Labor government has continued to order Victoria – one quarter of the national economy – to stay in deep recession, right through the September quarter, and who knows how deep and how much further as well through the December quarter and into 2021.
So, the governments ordering us into recession with the mandatory lockdowns delivered that ‘unprecedented’ 7 per cent plunge in the economy in the June quarter.
If we reported these numbers the way the Americans do – they annualise them – we would have been saying the economy shrank at a 25 per cent annualised rate in the quarter.
I don’t think the word ‘unprecedented’ quite captures the real meaning of a staggering fall like that; you really need a word that captures and blends a small dictionary of words like ‘mind-boggling’ ‘devastating and disastrous’ and ‘bizarre’ and a few others as well.
Now, the governments – correction and to stress, eight of the nine governments – set about ordering their economies partially out of recession in the September quarter.
That, albeit partially again offset by Victoria staying right at the bottom of the cliff, will see GDP rise by something like 4-5 per cent in the September quarter.
That will be one of the biggest-ever rises. But, even setting aside Victoria, that will most definitely not mean we, as in the rest of Australia, have sprung miraculously and so quickly out of recession.
No, the economy was still be in deep and serious recession; it will remain in deep and serious recession through the September quarter – measured in terms of what is actually happening to people’s lives in the real world as opposed to somewhat sterile statistical constructs.
Tens of thousands of businesses – across Australia, not just in Victoria but most devastatingly in Victoria – will remain shattered or shuttered; as many others will be brutally damaged with very real and widespread human cost.
The same ABS that gave us these GDP figures tells us the jobless rate is 7.5 per cent – actually, was, rather way back in the first half of July. Both Treasury and the Reserve Bank estimate it will go still higher to around 10 per cent before the end of the year and before, hopefully, starting to fall.
Those numbers are bad enough to signal a – continuing – recession; but as I have been explaining, they way, way understate the real level of jobless pain.
My estimate of the real jobless number in the first half of July was around 16.5 per cent – that’s over a million more actual people than the official ABS number.
The indications from what I now term Australia’s new official jobless data from Roy Morgan Research are that they fell in the latter part of July and probably into August. And then – Whacko! – came Victoria’s ‘house arrest’ Lockdown 3.0
You slam the brakes on one-quarter of the national economy and that doesn’t only hurt Victorians and the Victorian economy; it feeds negatively right across Australia, with the other states own softer partial lockdowns and border closures also impacting.
Now, it’s unique and weird enough to have the government, governments, ordering the economy into recession; ordering business be damaged or destroyed, jobs wiped out or curtailed.
What’s made it even weirder is the massive countervailing pump-priming – a combination that’s also completely and totally ‘unprecedented’.
It’s as I’ve characterised it, the government slamming on the brakes and gunning the accelerator at the same time. It’s destroyed people’s incomes and then given them taxpayer money as an offset to spend, led off by the $100bn-plus spent on JobKeeper.
As I again argued right at the start – and before it seems, the message had sunk in in Canberra – the government was morally obliged to do that (spend our money).
Having ordered businesses and jobs be destroyed it had to provide the financial support; it had to accept the huge budget deficits that would follow.
This weird and utterly unique combination makes normal analysis of the GDP numbers rather pointless. Simply, one big thing happened: consumers stopped spending.
They did so either because they had to – their incomes fell; or because they were, again, ordered by governments not to – with restaurants, shops, travel and tourism prohibited or limited.
The fall in consumer spending – from Victoria’s catastrophic 13.7 per cent down to Queensland’s drop of ‘only’ 9.6 per cent – was the GDP slump
The fall in consumer spending drove 6.7 percentage points of the 7 per cent overall GDP slump. Everything else was marginal and indeed even ‘normal’ in comparison.
Two things joined to ensure our 7 per cent plunge was less than in most other countries – most notably Britain’s ‘amazing’ 20 per cent plunge, but also the US’s 9 per cent and the European Union’s 12 per cent (no longer including the UK).
The first was the generosity of JobKeeper and indeed JobSeeker. But for that, GDP would have plunged by well over 10 per cent.
The second was China. Once again, just as after the GFC, it came uniquely to our rescue by buying iron ore if not also barley.
‘Interesting’ for our future, in light of the geo-politics.
LATEST BUSINESS NEWS
terry.mccrann@news.com.au
Originally published as Terry McCrann: Australia’s economy is depending on Victoria