LUCKY COUNTRY Our economy is still on top of the world

The quarterly numbers aren’t pretty but Australia is doing far better than the rest of the world

It’s been a long time between drinks, but in the drink the Australian economy is heading. Technically we’re not there yet but federal treasurer Josh Frydenberg did not opt for a stay of execution and acknowledged that Australia’s 29-year recession-free run is over. He also acknowledged that this is the treasury department’s view.

Frydenberg’s statement came after the Australian Bureau of Statistics (ABS) released its March quarter 2020 national accounts report that showed the economy contracted by 0.3% in the first three months of the year.

But unlike in the years 2000, 2008 and 2011, when Australia dodged a recession – defined as two consecutive quarters of negative growth – this time there’s no escape.

“Clearly, with this once-in-a-century pandemic, the impact on the economy has been very severe, the impact in the June quarter will be even more severe,” says Frydenberg.

The details of the national accounts underscore the fallout from the pandemic – and subsequent restrictions and lockdown measures imposed by nearly all governments on planet earth.

Had it not been for the 1.3% contribution from imports, Australia would have been grieving a much worse March quarter. Then again, that contribution was because of the 6.2% drop in imports over the March quarter due to frozen international supply chains and domestic businesses in lockdown.

What mattered big time, though, is Mighty Mo’s rescue packages – more specifically, his JobSeeker and JobKeeper schemes and, of course, the RBA’s monetary policy accommodation.

So much so that, while the June quarter national accounts will certainly confirm a technical recession in the domestic economy, Australia remains better than all the rest.

Using the same metric – quarter on quarter growth rate – Australia’s 0.3% contraction in the three months to March 2020 is top of the pops compared with the US (-1.3%), the Eurozone (-3.8%), Germany (-2.2%), France (-5.3%), Italy (-5.3), Japan (-0.9%), the UK (-2.0) and China (-9.8%).

This justifies the RBA’s positive outlook for the domestic economy. It says it is possible that the depth of the downturn will be less than earlier expected.

“The rate of new infections has declined significantly and some restrictions have been eased earlier than was previously thought likely,” it said. “And there are signs that hours worked stabilised in early May, after the earlier very sharp decline. There has also been a pick-up in some forms of consumer spending.”

The gradual relaxation of restrictions around the world should help underpin a shallower contraction/growth rebound in the domestic economy starting in the September quarter.

More so, given Mighty Mo’s recently announced HomeBuilder initiative, a $25,000 grant for homebuilders and renovators, which should support construction and the property market. Add the wealth effect from the recovering stockmarket for extra oomph and happy days will be here again.

However, just as RBA governor Philip Lowe cautioned, “even as the recovery gets under way, there will still be a shadow cast by the pandemic”.

I think the good gov meant shadows. There’s the threat of a second wave, there’s renewed sabre rattling between the US and China and there’s Beijing’s beef with Canberra for instigating an independent investigation into the origins of the coronavirus.

Beijing has already banned beef imports from four Australian abattoirs, put an 80% customs duty on barley, is looking at thermal coal import restrictions and has advised its citizens against touring the land down under and then possibly preventing potential students from getting Australian diplomas.

Data from the Department of Foreign Affairs and Trade shows China accounted for 30.6% of Australia’s total exports in fiscal year 2017-18, more than double that shipped to Japan, which is the second biggest market (at 12.7%).

China may lose the moral high ground on Covid-19 but it’ll certainly come out on top should the bilateral trade between Beijing and Canberra stop completely, prolonging the recession we didn’t have to have.

Benjamin Ong is director of economics and investments at Rainmaker Information.