The uncertainties over the NSW economy are already spilling into the the Morrison government’s electoral calculations.
Forecasters and government ministers predicting an economic bounce back following the current quarter of negative growth have forgotten an early lesson from the pandemic – the economy follows the virus. Australia’s economic trajectory could be W-shaped https://www.afr.com/policy/economy/time-to-worry-about-a-w-shaped-economic-slump-20200518-p54tv0 not V-shaped, with the federal election dominated by coverage of a double-dip recession. The Coalition would lose it.
Epidemiologists don’t know where the Delta variant is heading, which makes both admirable and baffling the Prime Minister’s confidence that after a “heavy blow” to the economy from the Sydney and Melbourne lockdowns, it will “come back to life very, very quickly.” https://www.afr.com/politics/federal/australia-should-dodge-a-second-recession-pm-20210721-p58bje
Morrison’s upbeat assessment, reportedly relying on advice from Treasury and the Reserve Bank, can only be based on an assumption that the Commonwealth will have accelerated its world-lagging vaccine rate of less than 14 per cent to near herd immunity well before year’s end.
When announcing quarterly economic growth figures, the Australian Bureau of Statistics highlights the quarter’s GDP compared with that of the previous quarter. So, following the inevitably negative September quarter the December quarter result should be bigger. Right?
Well yes, as long as there aren’t further lockdowns in the three months to end-December.
And as long as the virus doesn’t take another twist or turn or another nasty variant doesn’t arrive as Delta did.
And as long as weary consumers don’t decide to maintain their current high savings rates for fear of further disruptions and losing their jobs.
And as long as lots of heavily indebted small business owners don’t give up the ghost and close their doors.
As I suggested during the early stages of the pandemic, the federal government’s economic policy challenge was to keep businesses connected to the economy and employees connected to their businesses https://www.afr.com/policy/economy/stimulus-package-will-keep-bosses-and-workers-together-20200323-p54cwm.
That’s what JobKeeper and the Boosting Cash Flow for Small Businesses program did.
Some form of these connectivity programs will be necessary this time around too.
Since a recession is defined technically as two successive quarters of negative economic growth, the December quarter result need only be minus 0.1 per cent to produce screaming headlines of a double-dip recession.
Consumer spending accounts for around 57 per cent of Australia’s GDP. If it were negative in the December quarter, then GDP growth would almost certainly be negative.
Investment comprises another 20 or so per cent of GDP. There will unlikely be a significant increase in that in the December quarter, with much having already been brought forward as business owners bought utes to take advantage of instant asset write-off.
Government spending helped fill the GDP hole last year but that’s been tapered off and the Morrison government seems reluctant to get back into it on a large scale.
Exports are being propped up by iron ore sales to China but sales of just about everything to our biggest market have slumped.
There’s another traditional source of GDP that is now non-existent. In the period 2012-2019, population growth accounted for more than two-thirds of GDP growth. More than half the population growth was from immigration.
Australia’s borders will be closed to immigrants through the December quarter and beyond, so net overseas migration will not be a source of GDP growth.
When prime ministers consider election timing, they seek advice on important dates such as school holidays, football finals, state elections and major economic releases.
The December quarter national accounts are scheduled for release on 2 March 2022.
Prime Minister Morrison might feel confident that the economy will bounce back in the December quarter from the September quarter’s negative result. But would it be wise to take a chance on a double-dip recession being announced during a federal election campaign?
That would be a catastrophe for the Morrison government: marked down for its refusal to accept responsibility for quarantine, presiding over the slowest vaccine rollout in the western world, and forfeiting any claim to be superior economic managers.
If Morrison contemplated a March election, a Labor impersonator of Dirty Harry would say: “Go ahead, make my day.”
But an April or May election would face the same risks, since the March quarter national accounts would not be released until after the election must be held.
At this stage, the chances of a double-dip recession are probably less than 50 per cent, but they are not trivial.
Calling an election in the next few months would be madness. But risking the announcement of a double-dip recession in early March would be, let’s say, politically courageous.
A late-February election might be the best bet, though the federal campaign would overlap with that of the South Australian state election scheduled for 19 March.
In the grim circumstances now unfolding, with millions of Australians enduring new lockdowns and anxiety about the future, the government would be wise to pull out all stops to avert a W-shaped economic trajectory.
Craig Emerson is a distinguished fellow at the ANU, director of the APEC Study Centre at RMIT and adjunct professor at Victoria University’s College of Business.