Australians have been trying, and failing, to talk ourselves into recession for five years now. Will this be the year we finally crack?
In November 2008, in the wake of the collapse of Lehman Brothers, Reserve Bank governor, Glenn Stevens, warned about the need to go about business with a “quiet confidence” in our prospects. “Given the underlying strengths of the economy, about the biggest mistake we could make would be to talk ourselves into unnecessary economic weakness.”
But that quiet confidence has been hard to detect recently, with surveys showing consumer skittishness and businesses in the doldrums.
Certainly the tone of national political debate hit a new high note of hysteria this week. The week that gave us blue tie-gate, menu-gate and now radio-talk show-hosts-sometimes-ask-stupid-questions-gate also heralded the return of the dreaded “r” word into public discourse about the economy.
Of course the real gloomy talk began last week after national accounts showed state final demand in Western Australia shrinking for two consecutive quarters. Recession! screamed the headlines, ignoring two things. First, Western Australia has not, to my knowledge, seceded from the mainland. And second, state final demand is a limited measure of state economic health, capturing only the spending by households and business, not income earned on interstate exports. For Australia’s major exporting state, you’d think this might be important. And by the way, on this measure, South Australia is also in recession, having state final demand contract for three consecutive quarters in a row. Although as SA Premier, Jay Weatherill, assured me at last week's budget, weak final demand figures have for the past few years translated into stronger gross state product figures once inter-state exports are counted.
Anyway, national gross domestic product rose 2.5 per cent – below trend – but a long way from recession. But the slowing in growth means Goldman Sachs now predicts there is a one in five chance of recession, earning it the wrath of Treasurer Wayne Swan.
This guy can’t catch a break. People complain about interest rates being too high and then, when they fall, they worry it’s a sign of weakness. The dollar hits eye-watering highs, hurting exporters and import competing firms.
But when it falls, people replace those worries with concerns the dollar’s fall portends some economic evil. A grey lining to every silver cloud.
Yesterday’s tepid jobs report was met with similar confusion. Jobs growth was not as weak as expected. But at 1000 new jobs a month, nor is the economy creating enough jobs to keep up with population growth. The jobs market has weakened, and noticeably so, but has so far defied the more gloomy predictions. Good news or bad news? Depends on your point of view.
Goldman Sachs’ central forecast, by the way, is for growth to slow to 2 per cent this calendar year and 1.9 per cent in 2014 as the mining investment boom wanes and the dollar remains relatively high. The base case remains that recession is avoided.
“While a recession in Australia is possible we believe there is still time for the economy to respond to the combination of better global growth, domestic policy stimulus, and a lower Australian dollar.”
I have faced many questions over the past five years about the role of the media in reporting economic news.
You only report the bad stuff! I’m told. To which my response is – this is nothing new. The media is selling a product. And literally centuries of experience has taught editors that people are more inclined to pick up newspapers to read about potential threats than to hear the latest heart-warming tale. Journalists, of course, have a duty to report the facts. Headline writers, however, have a commercial responsibility to pick out the juiciest tidbits for big bold font. That is what happened this week with the reports of Goldman Sachs.
Today’s newspaper reading citizenry are as well informed and sceptical as they have ever been. If the media is more shrill, readers are in general also more equipped to cast a critical eye over media stories than ever before.
The potential for the viral transmission of fear is there, but it stops with the critical skills of readers.
Ever since the onset of the global financial crisis, we’ve been fretting about talking ourselves into recession. We haven’t yet and I doubt we will.
Ultimately it’s the fundamentals that matter: the rate at which households can borrow and the price at which foreigners can buy our goods. And both those things are moving in the right direction.
Animal spirits exist. But the real economy matters more.
The rest is just noise.