Terry McCrann: Victoria’s lockdown 3.0 to dig nation deeper into recession
Treasury forecasts Victoria’s Lockdown 3.0 will on its own drag Australia’s economy deeper into recession through the September quarter, writes Terry McCrann.
Terry McCrann
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Victoria’s savage Lockdown 3.0 will all on its own drag the entire national economy even deeper into recession through the September quarter — if Treasury’s got its latest forecasts right.
Just two weeks ago, with Victoria already embarked on the “softer” Lockdown 2.0 version, Treasury was forecasting a modest pick-up in the national economy despite one quarter of the national economy — Victoria — staying deep in its state government-ordered recession through at least August.
In the official economic and fiscal update — a sort of “Clayton’s budget”, the pseudo budget you get in late July when you didn’t get the normal budget in May — Treasury forecast the national economy would be slashed by 7 per cent in the June quarter thanks to the national lockdown.
This would be the biggest quarterly drop on record. But then, “the record” only goes back to 1948 so it does not pick up the almost certain bigger falls that would have happened through the Great Depression on and off through much of the 1930s.
Back then, two weeks ago, Treasury was forecasting the national economy would then kick up around 1.5 per cent in the September quarter as we all came out of lockdown, except for Victoria (for an intended six weeks of the quarter’s 13 weeks).
In real terms that would still have left the economy in recession — operating at a much lower level than pre-virus at the start of the year; with the real jobless rate still deep in double digits and even then everything only propped up by the massive spending on JobKeeper.
But now, the Prime Minister Scott Morrison has revealed, Treasury is forecasting that Victoria’s Lockdown 3.0 will subtract a thumping 2.5 percentage points from national growth in the September quarter.
That means, if forecast leads on to reality, that instead of growing by 1.5 per cent in the quarter, the national economy would shrink again, by 1 per cent.
What was still going to be bad would now be worse — an extra 250,000 to 400,000 would still be out of work, most of those but not all of them in Victoria.
Now, on one level, this is all not just “angels on the head of a pin territory” but forecasts attempting to predict how many are “jumping off” and then “jumping back on to” the head.
What actually matters to people is: have I lost my job?; will I get it back or get back a lesser job? And, will my business be totally destroyed, partially destroyed, or similarly “just” down one quarter and (mostly) back the next?
We will of course find out how accurate Treasury has proved to be when the June quarter GDP numbers surface in early September.
I suggest the 7 per cent June quarter forecast drop might be a tad too gloomy — even though Treasury was essentially “forecasting (in late-July) the past (the June quarter)”
The US saw its GDP plunge 9.5 per cent in the June quarter and has a much lower level of income — and so spending — support for all the workers the government ordered to lose their jobs. There was no JobKeeper in the US, more a JobSeeker-plus.
I’d also suggest that the (pre-Victoria Lockdown 3.0) 1.5 per cent September quarter recovery was also on the gloomy side.
Even with Victoria now screwing it for the entire country, I suggest the GDP number in the September will still show some positive growth.
None of my slightly more optimistic assessment relative to Treasury detracts from two things.
We are going through the worst recession in nearly 100 years — and the weirdest ever.
It’s the weirdest because we uniquely have a government slamming on the brakes — the national lockdown — and hitting the accelerator at the same time with the massive JobKeeper and other spending.
Secondly, the Victorian screw-up has made it that much worse for the entire country, not just (much) worse for Victorians.
Even if all comes “good” with the virus — whatever that turns out to really mean — so that there’s no extension of Victoria’s Lockdown 3.0 and it doesn’t extend to other states (especially, especially NSW), we are going to be still be in recession through the December quarter at least.
The best we can hope for is that we are able really to kick off in 2021 and keep going.
EMBRACING DEFICITS AND DECIMAL POINTS
The idea pushed by some commentators the federal government is reluctant to embark on further spending to offset the recession because of its entrenched “deficit fetish” is beyond laughable.
Did they notice the July statement from Treasurer Josh Frydenberg which predicted deficits adding to a breathtaking $270.3 billion — the 0.3 billon was utterly mindless exactitude, but that’s another (depressing) story — and predicting those deficits over just two years?
Sensibly, no forecasts were made for the budget after these two years, but trust me: there will be deficits. They will be big deficits; they will run right through the 2020s.
In a word, Treasurer and PM have well and truly “embraced” deficits. The “fetish” is so completely “yesterday” and that “yesterday” has a specific date — December 20 last year, when in his mid-year budget update, Frydenberg promised surpluses of $5 billion and $6 billion in these two years.
That $5 billion surplus is now a forecast $85.8 billion deficit: sorta makes the point about the pointlessness of decimal points. Sensibly though, they have not embraced completely unchecked spending. Good.