According to the Australian Bureau of Statistics, we’re not in a recession. At least in terms of the definition of recession as two quarters of negative growth, that is – the economy grew by about 0.4% last quarter. It’s not exactly a bed of roses, by any means. Peter Martin quotes Tim Colebatch, who argues that the definition is a bit of a nonsense; Australia’s GDP per capita has declined for more than a year.
In any case, it’s almost certainly not enough to prevent unemployment from continuing to rise. But it’s a hell of a lot better than it is elsewhere, with various other western economies shrinking by several percent – Japan’s by nearly 10%.
As various sources have noted, it seems that the combined actions of the Reserve Bank and the government have worked quite well for us, at least for now. Not to mention whomever makes economic policy in China.
There’s lots of things still to worry about – the mortgage meltdown in the USA is far from over, and the US will continue to export its economic pain for a while.
Lies!`All neoliberal lies, propaganda of the Thatcherite faction of statisticians well known to have infiltrated the ABS in cahoots with the Pinochet vanguard.
Capitalism is doomed until all Australians recite Keynes’ General Theory like young boys recite The Koran in Pakistani madrassas.
Until every Australia swears they are a social democrat and works as a “human services” person in the public service, I see nothing but rivers of blood!
The GDP number was all about net exports. Imports fell faster than exports, but both fell in the region of 10%. So there was a lot less trade (and economic activity) going on, but that added 2.2% to GDP.
Would someone mind explaining that to me?
The ABS says:
Goods exports fell $6,297m (-10%)
Goods imports fell $6,557m (-11%)
Services exports rose $351m (+3%)
Services imports fell $289m (-2%)
Oh, and a weak AUD during Q1 and getting pre-GFC prices for minerals might have had something to do with exports holding up.
Looking forward we have contract minerals prices 30-50% lower, and a currency that’s up 28% in three months. What’s that gonna do for net exports?
it seems that the combined actions of the Reserve Bank and the government have worked quite well for us,
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Well not everyone’s singin’ that tune. I’m beginning to see why FDR/New Deal Wars are still a minor industry.
The economic policy in China has really weird features. Like the party official who instructed some guy to build another floor on his house. The guy was out of work, he didn’t want a second story. But the Chinese have a policy of make-work. One of the economists discussing this said that China were doing the world a great honour at their own expense.
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I suspect that by the end of the year I’ll have come to the conclusion that we have as much understanding of how our economy actually works as a flea does of canine anatomy.
Don’t be too surprised when these numbers are revised downwards in a few months. I would be surprised if they are not.
All the worry worts herein commenting not withstanding…
+0.4 is still a surprisingly good number which will allow Kevin Stimulus to give Malcolm 178M’s-not-a-lot-really a good going over for a few days.
And it beats the crap out of going negative
Don’t be too surprised when these numbers are revised downwards in a few months. I would be surprised if they are not.
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Harry Dent made a prediction that we’re in for a ten year slump. He said that it would appear as if we were recovering midway thru 2009.
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I’m beginning to think I should stop paying attention to predictions.
Carbonsink, the terms of trade fell materially over the quarter, i.e. net export performance was worse in nominal terms. That’s why real gross domestic income fell by 1.4% while real GDP, i.e. output, rose 0.4%. See pp8-9 of the release. The chart at the top of page 9 is particularly sobering. Count how many journalists pick up on it tomorrow.
Naturally, the fact that national income is plunging will be completely overlooked by those arguing that Big Kev’s largesse with our money has somehow prevented a recession. Of course it hasn’t.
Naturally, the fact that national income is plunging will be completely overlooked by those arguing that Big Kev’s largesse with our money has somehow prevented a recession. Of course it hasn’t.
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No not on paper. We’re technically in a recession I guess. And you can’t argue that people imported our commodities because of Kevvie’s bail-out. On the other hand when the GFC hit the fan last year, when the business papers were actually being read, one of the themes that was persistently repeated was that it was important that the govt be seen to be doing something in order to create the perception that all was in hand and there was no reason to panic.
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Was there a truth there?
Carbon, you are getting your prices and your volumes mixed up.
Export volumes increased in the quarter while import volumes fell significantly – hence net-exports added significantly to real GDP growth. The fall in export values in the quarter is related to falling export prices, which means that the terms of trade are declining, which in turn negatively affects real gross domestic income.
So, you are both right and wrong.
You are right to stress that the contribution from net exports on the volume side doesn’t mean that things are peachy keen in Australia. Domestic demand contracted significantly in the quarter and is likely to do so in Q2 and Q3 as well. GDP growth is also well below potential and as others have pointed out, GDP per capita has declined notably over the past year.
For all intents and purposes, Australia is in a recession, but so far it has been mild and on the face of it, helped by the government’s fiscal measures and the RBA’s loosening of monetary policy.
I know that you are a bit bearish, but things are looking up in Australia on a number of fronts. China appears to have stabilised, which is in turn reflected in the rise in commodity prices over the past few months. The housing market is certainly not collapsing in the way that you thought likely when we debated these issues some time ago. Of course, that could mean that there is an even bigger bust lurking around the corner, but I think it in part reflects Australia’s different housing dynamics (under rather than over supply).
None of this is to say that there are not substantial downside risks. Many of the govermennt responses to the financial crisis and in particular the way that toxic assets are being dealt (or not dealt) with means that there is a reasonable risk that crisis could yet intensify. The world’s large macro imbalances also haven’t been resolved as it isn’t clear whether the US can shift away from its reliance on consumption led growth and China away from its export led growth (once its stimulus package has run its course). Unwinding the enormous monetary and fiscal stimulus will also be complicated – the deterioration in public finances in countries like the US and the UK is truley astounding and dwarfs the deterioration in Australia. The fact that commodity prices have rebounded so quickly (oil is back to a level that 4 years ago would have been seen as dangerously high, and that whilst we are still in the midst of the deepest global recession in 50 years!) also gives cause for concern….
Um, er: But I thought the “cash splash” – the phrase so well beloved by the Liberal spin meisters – was going on imported plasma TVs. Yet, imports fell. As Pauline Hanson would say: “Please explain”. And, how do Turnbull and Hockey explain that consumer spending rose 0.6 per cent in the March quarter when the full effects of the “cash splash” have not yet been felt.
“And, how do Turnbull and Hockey explain that consumer spending rose 0.6 per cent in the March quarter when the full effects of the “cash splash” have not yet been felt.”
Not to take a position on this, but I would have thought that is something for the cash splash advocates to explain.
BBB
I didn’t say anything about prices and volumes, I just quoted the goods/services credits & debits straight off the ABS website. Exports down, imports down more. Doesn’t really matter if was because of lower prices, lower volumes or both. Fact is less money was coming in from exports, and less money was going out for imports. All in all less money was moving around, which doesn’t add up to more economic activity in my book.
I don’t know what to believe about China. Apparently their steel industry is the doldrums and they’re desperately trying to reduce capacity. The govt recently ordered banks not to lend money to steel mills to increase capacity. Iron ore is piling up at Chinese docks, iron imports are at record levels, ships are waiting offshore to unload, and Rio says its mines are running flat out. How does that gel with a steel industry that’s struggling?
Electricity consumption is down month after month. Imports and exports have collapsed (see Brad Setser) but we’re supposed to believe the economy is growing at >6%. As Paul Krugman points out China has now stopped publishing electricity consumption numbers.
The reality is, China needs to export to someone. They can’t replace external demand with domestic demand overnight. Sure they’ll be good little consumers one day, but that’s decades away. The US economy is still 4x the size of China’s, and 70% of US GDP is consumption. That’s a lot of demand!
Anyway, rant over. The China-will-save-the-world / green shoots nonsense isn’t as clear cut as the cheerleaders (sorry financial analysts) make it out to be, but its all about momentum at the moment.
Whatever it all means – Talcum’s strategy – thin as it was, just got thinner!
I think Rudd would be wise to keep noting that Australia’s debt is the lowest of the advanced economies.
LeftyE @ 15 – is that because of the different country’s starting positions though? We had lots of money in the piggy bank before the big spend, whereas there were other countries who were already far into debt.
The ‘big spend’ is only a minority when you examine the breakdown Chris. Most of its reduced corporate tax revenue over the budget cycle.
I was right.
Or at least quicker and closer to the truth than anyone else in Ozblogosphere.
And published first on this site, so you should be grateful!
[long, uncomfortable silence as the performer waits in vain for a round of applause]
BBB at 13: You apparently cannot explain how consumer spending rose when your “position-less” attitude is apparently that it should not have. The “cash splash” advocates say that consumer spending rose and the economy improved as a result, meaning jobs were saved. What is your position BBB? Did the “cash splash” mean there was less consumer spending? Was an improvement in consumer spending (and consumer confidence) a bad thing? Let’s hear it from you BBB.
Umm, there have been several “cash” splashes, si?
One before Christmas 08 (could affect the March quarter figures). Another more recent, mostly after March. It’s effects to be adjudged in figures for the June quarter, si? Released in a few months from now?
Apologies for the empirical approach.
Can we predict that Sgr Strocchi’s howl of triumph will be a quarterly phenomenon?
More green shoots in China:
China Sees ‘Grim’ Job Market, Deeper Impact From Global Crisis
Message to Joe Hockey and Malcolm Turnbull:
“There is no harm in being sometimes wrong – especially if one is promptly found out.” – J.M. Keynes.
Did you check the lameass A4 black & white graph they took the press conf?
JohnL,
If the proposition is that the ‘cash splash’ increased consumer spending, that I must agree. Emphatically so, in fact. So perhaps I misread you. I thought that you were suggesting that it is for Turnbull and Hockey to explain how consumer spending rose so much even before the full effects of the ‘cash splash’ were felt, when increased consumer spending ahead of ‘cash splash effects’ would tend to detract from the argument that the stimulus itself was responsible (i.e. it would be consistent with what Turnbull and Hockey have been saying).
Finally, are you OK? You seem a touch hysterical.
BBB
Not to put a downer on things but are these figures ‘accurate’ in the same way the unemployment rate is ‘accurate’?
My view on the Australian housing market is that any collapse will be triggered by a downturn in the resources sector. Clearly that hasn’t happened yet. In Q4 and Q1 Australia was still getting pre-GFC contract prices for our minerals, and the AUD was trading below 70c. That has all changed now. IMO, there is crunch coming for export income, government tax receipts and a trade deficit blowout. Don Henry was in the news yesterday saying similar.
A likely scenario over the next few months is that businesses rebuild inventories as the economy ‘recovers’ sucking in imports that have been postponed for six months. At the same time our big exporters are getting crushed by the 1-2 punch of new mineral contract prices and a much stronger AUD.
So, later this year we see the resources sector slump, the vendors grant (sorry, first home owners boost) end, and fiscal stimulus withdrawn. Once housing confidence cracks the over indebtedness of the housing sector comes into play and we could get a bout of deleveraging in Australia.
Of course, this dire scenario could be turned around if the ‘green shoots’ recovery is real. Certainly the stockmarkets are media are convinced ATM, but its very fragile.
Gerard Minack is a grumpy old bear isn’t he?
It doesnt matter whether they’re accurate or not, given the opposition strategy.
The key moment yesterday was Turnbull audibly swallowing his credibility, and the last month of tactics as he said “some of these factors were out the government’s control”.
Oh really, Mal? Out of the government’s control, you say? How about that.
Media recession avoided – round one to Rudd.
Adrien Jun 3rd, 2009 at 6:23 pm says:
[STROCCHI VINDICATION ALERT]
Adrien, you should pay attention to my predictions, which have been confirmed so far.
In the first few months of 2009 I repeatedly predicted that AUS would escape “relatively less-scathed” from a GFC-inspired recession. I argued that Costello-Howard deserved much more credit for AUS’s good performance as they had ensured that our:
- lenders were better regulated, through generally more stringent prudential regulations
- borrowers were more creditable, though authorising a high rate of high IQ immigrants
These predictions were made at the very nadir of the stock-market, when gloom and doom abounded. Its important to realise that on conventional metrics AUS should have been more, not less, vulnerable to the GFC owing to our:
- high level of capital imports, making us vulnerable to interest rate hikes,
- high dependence on mineral exports, making us vulnerable to terms of trade plunges,
But I discounted those risks as I have been consistently bullish about the PRC’s continued ability to both buy our ore and fund our current account deficit.
In early MAR 09 I refined my prediction with more specific empirics:
I am not aware of any other Ozbloggers, or for that matter MSM pundits, who made similiarly optimistic predictions. Not Quiggin, Not Bahnisch, Not Merkel, Not Clarke, Not Leigh. And certainly none of the sundry commentators who loiter in these parts.
It was not just a lucky guess. I claim perspicacity in both general outcome and particular causes.
I was right about AUS having a very mild recession – much better than predicted by the stock market fall (which dropped by 45% from its DEC 07 peak to MAR 09 trough).
I was right about the specific economic reasons for this relatively benign outcome. And no, it was not Rudd-Swann’s stimulus package.
Some part was the massive 30% cuts in interest rates, from 9% to 6%. Some part was due to our tighter financial regulations (on deposits and collateral) introduced by Costello in the wake of the Wallis Report.
But mainly our good economic performance is due to massive immigration rate (200-300,000 pa for period ranging FY2003-9) which underpins rents and property values. Thereby pre-emptively solving a the property crash. The GFC is caused by over-leveraged banks unable to maintain their loan portfolios.
Housing unaffordability is a feature, not a bug, from the point of view of economic policy makers. If properties are “packed to the rafters” then they will be more likely to generate high income per household. That goes straight on the banks bottom line, thereby averting a credit crunch.
But our banks have blue-chip portfolios due to the housing shortage. Thats why I put so much store behind our banks leap up the global capitalisation league tables.
Apart from evidence I have creditable authority supporting my argument. On 31 MAR 09 the RBA more or less confirmed my thesis:
Its true that the RBA did not go the whole way and argue that the housing shortage and high price plateau was caused by massive immigration. That potatoe is too hot for bureaucrats to handle.
But its the IMF reports that immigrant-driven high rents is the reason for high property values. Crikey reported as far back as 2007 that housing unaffordability was caused by mass immigration.
Its still a little too early for me to claim outright intellectual victory. A number of things could still go wrong and queer the economic pitch for AUS and spoil my predictive record:
- interest rate hike as the glut of Asian capital dries up
- terms of trade slump as PRC export demand plummets
- house price collapse due to domestic credit crunch (1st home buyers sub-prime?)
I give myself another 6-12 months before I do the victory lap, assuming absent crash. But in the meantime I would like to know if any other LP commentators or blogger made similar early calls about the likely severity of the recession. And if so, how are they bearing up?
Just askin’.
LeftyE @ 23 – you’d think they could afford a color printer! I don’t really understand the resistance to props in parliament though. They should get into the 21 century and put up a big TV screen that people can put pictures up on.
We’re probably not out of recession. Or are still in one. But who cares? Watching the Libs’ political strategy lose all credibility was enough for me. As for Malcolm’s graph – he looked like he was doing a guest appearance on The Chaser.
Malcolm’s performance with the hand held B&W graph was hilarious. Surely the appartus of the leader of the opposition’s office can manage A3 and colour for a matter of national significance?
Thanks to the change in ABS methodology we’ll almost certainly see a slump in net exports in Q2, not to mention a crash in export income from the rising AUD and new mineral contract prices. There will have to be some serious green shoots action to offset that and get Q2 into positive territory.
So we’ll have Q4 negative, Q1 positive, Q2 negative. Viola! No “technical recession”.
P.S. All this Malcolm bashing is a bit shallow isn’t it? Do you guys give a damn about what’s really happening or just wanna see the Libs hurting?
“Do you guys give a damn about what’s really happening or just wanna see the Libs hurting?”
Yes and yes.
Oh lighten up carbonsink.
Malcolm’s style of over confident self importance means that when he is wrong footed by real events it’s impossible not to be entertained. Even whilst fully understanding the enormous gravity of the flaming economic train wreck currently playing out around us.
On the alocation of “cash splash” effects in these figures: Lindsay Tanner estimated on RN this morning that about $4 billion was sent out in March 09 and about $8 billion in April. Since some of the March cash wouldn’t have been spent in March, I expect most of the effect (if it boosts domestic spending) will be seen in the current quarter.
Some will be spent on imported consumer goods, but the effect may be too small to discern amongst the usual fluctuations.
Call me a renaissance man, but I care whats happening AND I enjoy seeing the LIBs hurting. All at the same time!
A lot of the talking down of the numbers based on their composition and so called contributions to growth is nonsense to an extent.
You get swings and roundabouts from the composition of growth and contributions to growth.
Yes imports declined and that added to growth but equally imports will bounce back at some point and that will detract from growth in the numbers going forward.
Consumptions the biggest part of the economy and that held up pretty well, in large part thanks to govt action.
Investment was down which was obviously expected, but its faired much better than in comparison to many overseas countries where their banking sectors froze.
Much of the commentary around the numbers by the media and others shows little understanding of them.
Cheers
Nick
Capitalism crshing and burning and I’m supposed to be in tears? Give us a break! OTOH, I do care deeply for all the terrible trhings that are happening to ordinary people because of the greed of Malcolm’s banker mates, the rich capo pigs who are mostly getting out of this without a scratch – but isn’t that always the way?
Crap. There’s trade train wreck looming, and there will have to be a big drop in the AUD to correct it.
Consumption is strong largely thanks to handouts, and business investment is in a hole.
Shock trade deficit
I wasn’t shocked.
Its going to get much worse in June and July as the big price cuts kick in, and the much stronger AUD begins to bite.
Carbon – the fall in commodity prices (already reflected in spot prices but only now being reflected in bulk commodity prices) has already been factored into the exchange rate because it has been expected for some time. Indeed, the recent rise in the dollar is in part related to the recent improvement in the outlook for commodities (compared to what was expected some months ago). Yes, Australia’s terms of trade will decline this year. Yes, this will have an impact. The economy will most likely contract in at least one of the next two quarters, though that will depend quite a lot on how well the stimulus package holds up consumption. Private investment was very weak in Q1 (as expected), but if anything, the “green shoots” to the extent one believes them, will improve business confidence and hence make them more likely to invest through the rest of the year.
So, I’m really not sure what you base this train wreck theory on. Even when the lower bulk commodities come through, Australia’s terms of trade will remain significantly higher than in even in 2006. The surge has only partially been unwound. That obviously impacts growth, but I think you are overestimating the magnitude of that impact.
You really do seem to be a perpetual economic bear.
Re carbonsink’s comment at 27: I wonder whether Minack’s observation explains the 1.8% GDP discrepancy that I pointed out in today’s CRIKEY.
Sure, the market anticipated the crash in commodity prices and the AUD promptly fell 35%. What actually happened was we kept getting pre-GFC contract prices for our commodities, and Australia put together a string of stellar trade numbers. This pushed the terms-of-trade shock forward a couple of quarters, and is one of the main reasons why Australia is 6-12 months behind the cycle.
The “improved outlook for commodities” is delusional nonsense. Look at what’s actually happening in China, esp. steelmaking (see my comments above).
What’s happening now is the lower contract prices are finally flowing through to export income (you can see it in the raw numbers if you care to look) and this is happening at the same time as a steep rise in the AUD. My guesstimate has export income from coal and iron ore more than halving from the peak in mid-08 to a trough in Q3 09.
My guess is China will play hard ball on iron ore prices, and our big coal customers (Japan, Korea, Taiwan) are in a near depression. To quote Brad Setser: “China wants leverage in its iron price negotiations with the Australians; storing a bunch of ore is one way to get leverage!”
The surge in confidence (which is real but baseless) will also see businesses rebuild inventories that were cut to the bone during the Oct-Mar period when the world was ending, and the AUD was weak. I reckon we’ll suck in a lot of imports in Q2 and Q3, adding to the train wreck.
You really do seem to be the epitome of mainstream economics. The mainstream that completely failed to see this crisis coming.
P.S. I’m a bear on everything
The Rudd Government’s response to the GFC was one of the most impressive in the world. Unlike, say, Germany, Rudd didn’t waste precious months denying the need for a stimulus. He simply acted.
Yeah well, what can I say. Depending on the way you look at the numbers, it can look a lot worse. e.g income.
Real gross domestic income: Q4: –1.3, Q1: –1.4
Real gross national income: Q4: –1.2, Q1: –1.2
Or if you want to see something really nasty:
Real net national disposable income per capita Q4: –2.2, Q1: –2.2
GNI is supposedly a better measure than GDP anyway, but who cares. Green shoots ahead!
True to a limited extent. Germany (like Japan) is in hole because they make things, generally expensive things, that people can put off buying. Australia makes nothing except rocks, and because most of our rocks were sold on a contract basis (and our currency fell in hole) we were rewarded for our laziness for a few quarters.
That’s all ending now.
Hot off the presses, yet more green shoots in China:
China’s power generation drops 3.5% in May.
It surprised market expectations.
Re: “Last night Minack came up with a surprising analysis of the national accounts..”
And today the ABS rubbished what he said. See their media release today.
The ABS says in the response to Minack:
I might be a bit thick, but given the extreme price volatility in commodities for the 2006-2009 period (sharp rise followed by sharp decline) what relevance do 2006-2007 prices have to the the March 2009 quarter? Indeed, what relevance do the extremely high prices of 2007-08 have to the September 2009 quarter?
For example, can we expect export incomes to surge in the September quarter because the ABS is using 2007-2008 prices as the reference year?
What Minack said might have been wrong, but the ABS’s methodology bears no resemblance to reality on my understanding.
All this proves is how fabulously resilient capitalism is. If John Quiggin and the Social Democracy All Stars think they have seen the end of “Neoliberalism” they are in for very rude wake up.
And the complete dolts have TENURE! What a racket!
Shut up ‘slime.
Bill Evans is awake…
I repeat my main point. The GDP numbers were not as clear cut as the media cheerleaders suggest. The extreme volatility in the AUD, export prices, and import volumes over the past 6-9 months has made it very difficult to produce an accurate measure of economic performance. All kinds of statistical oddities are being introduced, and we really need to look at the income numbers.