After economic bounce, the hard work begins now

Confidence is the X-factor in recovery. That is why the Reserve Bank’s brave call that the nation is already out of recession will feed the animal spirits of companies, investors and consumers. On Tuesday, RBA deputy governor Guy Debelle told a Senate estimates hearing that the September quarter was headed for positive growth in gross domestic product. The reopening of the Victorian economy will help to fire up activity in this quarter. And interstate borders must be dismantled as soon as possible, especially for the benefit of the tourism and hospitality sectors. Most Australians feel like a summer holiday, and it’s time to book.

A turnaround in growth, after GDP fell 0.3 per cent in the March ­quarter and 7 per cent in the June quarter, would be testimony to our resilience and underlying economic strength. Wednesday’s inflation data, which showed a 1.6 per cent lift in consumer prices in the three months to September — the fastest quarterly lift since 2006 — added weight to Dr Debelle’s prediction. The CPI result showed the profound changes to how we live and work wrought by the pandemic. Aside from rises in the cost of petrol, childcare and rent, heavy spending on home offices drove a 12 per cent jump in prices for furnishings, household equipment and services. The increase of nine million hours worked in September also augurs well for growth. So does the Commodity Insights report commissioned by the Minerals Council of Australia showing that ­demand for thermal coal in a range of Asian countries, including India and Vietnam, will increase by 275 million tons by 2030. An interest-rate cut to 0.1 per cent from 0.25 per cent when the RBA board meets on Melbourne Cup Day would help fuel what is shaping as an uneven and grinding road out of recession. The looming pressure points that could act as a brake on consumer spending and investment are clear.

Economic recovery is ­expected to be unpredictable and uneven, with rising ­business insolvencies and problems for some households in servicing their debts, as RBA assistant governor Michelle Bullock warned in a speech on financial stability on Tuesday. The true extent of “economic scarring’’ from COVID will be clear only after the JobKeeper subsidy falls from $1200 a fortnight to $1000 in January, and runs out at the end of March. As economic activity gathers pace, the withdrawal of taxpayer-funded support is necessary. And Scott Morrison made it clear in question time on Tuesday that a permanent increase in JobSeeker is likely after the generous coronavirus supplement stops at the end of the year. The withdrawal of government aid, while necessary, will be a blow to the unemployed and those whose jobs will not be coming back post-COVID. The effect on consumer spending will be exacerbated around the same time, as Tom Dusevic wrote, by an increase in mortgage arrears and defaults as banks withdraw loan holidays and landlords begin demanding full rent from tenants.

In his budget, Josh Frydenberg called forth the power of aspiration to oil the wheels of recovery. The focus, Treasury secretary Steven Kennedy told Senate estimates on Monday, is transitioning policy settings from emergency and support measures to policies that promote a strong recovery. But the harder yards of reform, including modernising the industrial relations system, must be addressed. If we are to succeed in manufacturing, a key goal of the Morrison government, the last thing we need are rolling strikes such as those being threatened by the CFMEU against the major egg carton supplier responsible for 70 per cent of the nation’s egg packaging. At a difficult time, the strike could disrupt the supply of eggs to supermarkets, cafes and restaurants. Old-fashioned, 1970s-style industrial confrontation is not in the interests of companies, workers or the wider society. Much will depend on the work of five reform groups considering award simplification, enterprise agreement making, casuals and fixed-term employees, compliance and enforcement, and greenfields agreements. We need a better, more flexible system that is win-win for business and workers by improving productivity. Freeing industry from red tape and providing affordable energy also remain key policy priorities.

After recording our first official recession for 29 years, Australia will get off lightly if Dr Debelle’s analysis is right and we emerge from recession when the figures for the September quarter are published in December. But the following two quarters, as support payments end, are also shaping as challenging. Compared with much of the world, which continues to battle COVID second waves, Australia is in a good position. Being an island helps to manage the virus but our economy is not an island. Whatever happens to our trading partners will impact on us. We can take nothing for granted while the pandemic continues to devastate much of the world. Sound policy settings are essential to capitalise on the fact we are bounding out of the blocks after the worst economic shock since the 1930s.