Economic cliff plunge may not be as steep as we feared
Economists expect the GDP to shrink by between 6 and 8 per cent in the June quarter, but while such a plunge would mean the worst recession since the Great Depression of the 1930s, we won’t be starting quite as far down as we first feared, writes Terry McCrann.
Terry McCrann
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In the March quarter we started to slide over the cliff. Right now in the June quarter we are falling – the ‘good’ news is that we might not fall as far as originally feared.
The GDP numbers showed the economy went backwards by 0.3 per cent in the March quarter as the flight bans and the very early stages of the national lockdown started to impact.
We slashed our spending on transport services – flights, public transport, petrol — by a thumping 12 per cent and on hotels, cafes and restaurants by 9.2 per cent. Spending on clothing and footwear also fell 8.9 per cent as stores started to close.
Not surprisingly — remember the toilet paper frenzy? — spending on food, mostly in supermarkets, leapt 5.7 per cent. Woolworths showed that as a business it was having a ‘great lockdown’ this week by handing out one-off bonuses to over 100,000 staff.
In overall terms a 0.3 per cent drop in the economy would not be that big a deal. In this case of course it was only the warm-up to the much bigger plunge that took place in April and May as governments froze the economy with the lockdowns.
Forecasts have been as high as the economy shrinking by as much as — and a totally unprecedented — 10 per cent. We’ve never seen anything remotely that big before, and certainly not in the 75 years since World War Two.
Further the drop would have been even greater but for the federal government’s equally unprecedented $200 billion-plus spending splurge to keep businesses alive, people in or linked to their jobs, and to maintain spending into and across the economy.
This was headed by the — intended — $130 billion spent on JobKeeper. That assumed it would need to support an extraordinary 6.5 million of the 13.5 million jobs in the economy.
The again, ‘good’ news is that it’s turned out to be only 3.5 million and will therefore cost ‘only’ $70 billion. So we might not fall as far as originally feared. The economy might ‘only’ shrink by 6-8 per cent in this June quarter.
Indeed the Reserve Bank said on Tuesday that there were “signs that hours worked stabilised in early May, after the earlier very sharp decline. There has also been a pick-up in some forms of consumer spending”.
Now a plunge in the overall economy of even the ‘better’ 6-8 per cent would still be completely unprecedented. It would still mean the worst recession since the Great Depression of the 1930s; thousands of businesses would still be — have already been — destroyed, hundreds of thousands will lose their jobs.
The big question then becomes what’s on the ‘other side’? How do we claw our way back up the cliff? How long does it take and can we get back to even where we were just in this March quarter?
But at least we won’t have to be starting quite as far down as we initially feared.