Recession over? Not yet, not even nearly

Debelle said what he said very deliberately — if he had wanted to say “recession over” he would have said “recession over”.

Deputy Governor of the Reserve Bank of Australia Guy Debelle said what he said very deliberately — if he had wanted to say “recession over” he would have said “recession over”. Picture: AAP

The Reserve Bank deputy governor Guy Debelle did not say the recession was over, despite the universal media claims that he did.

He did not say it because it would have been completely and utterly false, extraordinarily silly and indeed — at the level of “get me a new deputy governor, fast” — embarrassing.

It would also have been of some considerable interest to the two million Australians who are still (really) jobless — at one in every seven workers, the highest it’s been since the Great Depression of the 1930s.

It would have been news to the tens of thousands of businesses that have been and remain shuttered and shattered; and to their owners whose livelihoods and indeed lives have been destroyed thanks to the continuing recession.

The paper which purports to be our repository of financial and economic expertise, the Financial Review: “Debelle calls end of the recession.” Double false: the recession has not ended; Debelle did not call its end.

The Nine broadloid The Sydney Morning Herald: “Recession is over: Reserve Bank.” The same double false.

The Herald Sun: “Recession over: RBA”. And even regrettably this paper: “Revival on as recession over: RBA.”

These assertions did not only display economic illiteracy but basic journalistic fails. I’ll get to what Debelle actually said, but just broadly: do you just sorta think that if the RBA had concluded the recession was over it might just want to actually announce it?

You will look in vain for any such announcement on the RBA’s website this last week. “Financial instability in uncertain times”, new banknotes, “Digital capabilities in support of organisational resilience to COVID-19”: yup. But somehow “Recession over” couldn’t be squeezed in.

What Debelle actually said, to 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’.’

Apart from the fact that Debelle said what he said very deliberately — if he had wanted to say “recession over” he would have said “recession over” — to convert his words into “recession over” requires an impressive level of economic illiteracy, combing two inanities.

It assumes that “recession” and “recovery” are mutually exclusive. In the early stages of — hopefully, what will become sustained — recovery, you are always still near the depth of the recession. It’s a matter of simple logic apart from anything else.

Importantly, Debelle in any event did not even state that we were on the recovery path. Just that we had recorded positive growth in the September quarter whereas previously the RBA had expected another negative, thanks to Victoria.

The second inanity is this
so-called but utterly nonsense “technical definition of recession” — two successive quarters of negative growth.

So if the September quarter is positive, voila, there are no longer two successive negative quarters; and that means no longer a recession; and so, double-voila, Debelle was “announcing” recession’s end.

Unlike the illiterates among the economentariat, Debelle knows that a recession is a “significant decline in economic activity”, manifested in high unemployment and business failure and stress.

The so-called “two quarters technical recession” is for the intellectually challenged.

Yes, the economy grew, slightly, in the September quarter. We will get the official data from the ABS in December.

Of course we were going to get a bounce in the September quarter after the crushing shock of the June quarter universal lockdowns.

Our economy shrank by a statistical record (since 1949) 7 per cent in the June quarter. Before Victoria shot itself — and a quarter of the national economy — in the foot, I suggested we would rise by around 4-5 per cent in the September quarter.

That would still have left us 2-3 per cent down — operating at 97-98 per cent — of where we had been in the March quarter.

“Thanks” to Victoria though, I suggested that the national economy would now recover only by 2-3 per cent. At the time the RBA thought it would be slightly negative. Treasury thought it would be slightly positive — a debate in the official family over decimal points.

The RBA now agrees with me; that the increase in GDP in the September quarter will be clearly positive. They might give us a more exact figure in the coming week.

If we do get the 2-3 per cent, the economy will still only be back to 95-96 per cent of the level of the March quarter.

We will still have been (in the September quarter) in recession: we were still suffering a “significant decline in economic activity”.

Then comes the December quarter, with Victoria — a quarter of the national economy — semi-opening up for two-thirds of it and, hopefully, staying open.

Yes, the best case is that we continue to claw our way back up, but while major sectors of the economy remain closed or limited by government — tourism, education and hospitality — we won’t get fully back even to where we were in March.

That means that, best case, the economy in the December quarter will still be operating at something like 4-6 per cent below capacity, with continued significant level of (real) jobless and business stress. Recession.

And remember, that’s with the help of JobKeeper supporting over three million jobs and the businesses that employ them — and which is being progressively withdrawn.

The contrast with the US is instructive and not to our advantage.

Yes we did better going down — dropping 7 per cent to their 9 per cent. But the US has now leapt 7.4 per cent in the September quarter; we are likely to have risen 2-3 per cent.

That left the US down 2 per cent on its March quarter level; we will be down 4 per cent, at best.

Recession over? A very premature expectation.