Terry McCrann: The recession is not over
Despite the headlines you may have read this week, the whole country will still be in – yes, a milder – recession as we move into 2021. Terry McCrann explains why.
Terry McCrann
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The recession is not over. Reserve Bank deputy-governor Guy Debelle did not say it was over, despite the universal headline claims that he did.
Yes, the rest of Australia — that’s, everywhere but Chairman Dan’s Victoria — bounced off the bottom in the September quarter and the December quarter will further improve on that.
Further, this time, Victoria will also join in. Indeed, Victoria should do even better through Christmas than the rest because it has so much ground to make up.
But, bottom line, the whole country will still be in — yes, a milder — recession as we move into 2021.
And at that precise point, as we are all toasting the new year, the JobKeeper program which has been so critical in keeping more than three million Australians in jobs — close to one in every four workers — and just as importantly keeping alive the businesses that employ them, gets wound back again.
That will impose a drag across the economy through the March quarter and then JobKeeper disappears completely at the end of March. After that, all those businesses and all those jobs will be on their own.
It is going to be a long and painful road out of this. We are not going to suddenly wake up one morning and find ourselves in a booming economy. And we certainly didn’t — even outside Victoria — at some point in the September quarter.
What Debelle actually said, speaking at Senate Estimates, was “at the moment it looks like the September quarter for the country probably recorded positive growth rather than slightly negative”.
He went on to say that “the growth elsewhere in the country was more than the drag from Victoria and the drag from Victoria was possibly a little less than what we guessed back in August”.
In the June quarter Australia suffered its biggest economic plunge on the statistical record, going back to 1949. The economy shrank by 7 per cent. The real number of jobless leapt to around two million — one in every seven workers.
It would have been much worse but for JobKeeper, which directly paid the wages and salaries of 3.5 million workers — one in every four. Indeed, overpaid them in some cases — those who’d been in part-time work.
All their spending in turn supported jobs more generally across the economy.
Now Debelle didn’t put a figure on what the RBA expected growth to have been in the September quarter; it might when it releases its regular quarterly forecasts next week
My estimate has been that growth was around 2-3 per cent. It would have been more like 4-5 per cent but for Victoria shooting itself — and indeed the rest of Australia — in the foot. Or as Debelle more politely put it: “the drag from Victoria”.
We, Australia, went down 7 per cent in the June quarter. We might claw back 2-3 per cent in the September quarter. If we grow another 3 per cent in the December quarter, we will still be below where we were in the March quarter.
We will still have well over one million (real) jobless; we will still have more than two million who are either jobless or underemployed; we’ll still have perhaps three million jobs being subsidised by JobKeeper.
And all this is before considering the virus — it pretty much assumes it stays tamed.
If we look, especially at Europe, at what happens when you open up the economy, it is a sobering qualification.
We are still hanging everything, and I mean everything, on the assumption — the hope — of getting a vaccine; what I call the “Godot vaccine”.
Whatever does happen, we are clearly not going to have a fully “normal” functioning economy through 2021.
There are clearly going to still be — even best case — some controls and restrictions on travel, tourism, international students, immigration and hospitality generally.
We won’t be back to where we were before the virus flew in — and, I would argue, we should not try to go back to there anyway.
That old — now, gone — economy was built on an immigration-driven population-property Ponzi. Bring in hundreds of thousands of migrants every year and build more and more high-rises in Melbourne and Sydney; and then the infrastructure that a bigger population demanded.
We got bigger and bigger. We did not get richer and richer in real terms. We certainly did not get better and better. It was the very opposite of a smart economy — just quantity over quality.
We have to find a totally different economy — one built on real value-adding, smart, 21st century thinking and technology.
We are going to have to find it, in a tougher, colder world — thanks to, yes, the virus, but also to the world trying to keep reality at bay, with zero interest rates, printing money and tens of trillions of dollars of government debt.
We’ll have our own trillion soon — on the way to two trillion and billions inexorably higher.
Originally published as Terry McCrann: The recession is not over