Terry McCrann: Australia is like three countries within a nation — Victoria, NSW and the rest
Australia will get a positive GDP growth number for the September quarter, but the size is dependent on NSW not heading down Victoria’s path of recession, writes Terry McCrann.
Terry McCrann
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Australia is now three countries — Victoria, NSW and the rest.
Victoria’s the “known known” — it is heading straight back into a (state) government-mandated recession, destroying businesses, jobs and indeed lives.
NSW is the “known unknown” — right now it is pivoting: will it “do a Victoria” or stay in the (relatively) virus free and (relatively) opened-up category with the other states? Right now we don’t know; over the next few weeks it will become a “known known”, one way or the other.
So what are the other four states? Probably some mix of “known knowns” and “unknown unknowns” and frankly irrelevant in the broader national reality.
We think we know that the other states are (relatively) virus free. But there are equally “things out there” which could come out of left field that, like the virus itself back in January, we just don’t know we don’t know. We will find out.
Now, they are irrelevant in the national context, apart that is, from us all desperately needing WA to keep shipping off around one billion tonnes of itself, mostly to China, every year to, essentially, “keep all our lights on” and also our national triple-A credit rating.
Putting all this together, the base case now is that the Victorian Lockdown 3.0 will crimp but not stop the bounce back in the national economy in the September quarter.
We don’t yet know the official numbers on how much the economy plunged in the June quarter — the GDP data only surfaces at the start of September.
The GDP drop will be less than the thumping 9.5 per cent plunge revealed last week for the US economy in the June quarter; thanks mostly to the spending generated by the 3.5 million workers getting JobKeeker.
If we’d all come out of the National Lockdown 1.0, GDP would have jumped in the September quarter by almost as much as it had gone down in the June quarter.
Critically though, we would not have got back to where we were in January-February. That’s best captured by the jobless numbers.
Before all this, the jobless rate was around 5 per cent. Roy Morgan Research — now the only reliable and even more, timely, data — tells us that in July it was still 12.5 per cent. But that does not include those who would be jobless but for JobKeeper.
In the best case it was not going to get anywhere near down to 5 per cent by end-September.
And now Victoria means that the recovery GDP-leap for the quarter won’t be anywhere near as big. But yes, we will still get a positive GDP growth number for the September quarter.
The only thing that could stop that would be if the NSW’s virus numbers went suddenly and dramatically south and it immediately followed Victoria back into Lockdown.
Fortunately, that’s not very likely; so these “known knowns and unknowns” take us to a pretty reasonable state of play at the end of September. It will also be very timely.
When PM and Treasurer opted in late March for a six-month policy horizon (for JobKeeper and JobSeeker) it was very much a case of not much more than “a good idea at the time”.
Now it looks exactly right. As we move through September we will have not only a much better handle on how the virus and the economic dynamics are trending — not just around Australia but just as importantly, globally — but on the policy imperatives.
A budget, as now planned in early October, is exactly right whatever which way things have broken through to the end of September.
The best-case outcome is that the current maximum JobKeeper and JobSeeker payments (to end-September) run more or less in tandem with Victoria’s Lockdown 3.0 (to mid September). Both the Lockdown and the maxed payments then end.
That would lead into a positive December quarter, with the tapering of the payments both appropriate and still boosting the economy. Then it’s 2021 and we can think about that down the track.
Things don’t look anywhere near as rosy if either Victoria’s lockdown continues past mid-September or NSW gets dragged back into one as well — or, obviously the worst case of both.
In these cases GDP growth would go negative again in the December quarter after the September quarter surge. And beyond the headline numbers, there’d be serious long-term damage done to both businesses and jobs.
BUSINESS CONFIDENCE ALREADY PLUNGING
The plunge in business confidence before Victoria’s Lockdown 3.0 — revealed by Roy Morgan Research — shows just how devastating the much tougher lockdown will now be across Australia.
Business confidence in Victoria had already plunged by 12.5 per cent through July, thanks to the softer Lockdown 2.0, to the lowest level of the three biggest states. It was the major factor in dragging down the national confidence measure by 11.3 per cent.
Business confidence in New South Wales was only down 6.1 per cent through the month.
Victoria was not on its own.
Business confidence also plunged and by bigger percentages in Queensland (13.3 per cent), WA (18.2 per cent) and SA (32.2 per cent).
But the first two of those were starting from higher confidence levels.
The now certain further drop in business confidence in Victoria will drag confidence in the other states down with it.
That makes what happens in NSW and business confidence in that state even more critical.