Now that the Liberal party has won an election even they didn’t think they would win when they delivered this year’s budget, they now have to face the reality that the economy which they spent five weeks telling everyone was strong is actually not.

To see how much the Australian economy has slowed over the past 12 months you could do worse than look at the market expectations for the cash rate.

A year ago the market thought things were on the improve – inflation growth would start picking up along with wages – and thus it believed by now the Reserve Bank would be looking to increase interest rates to 1.75%.

Fast-forward 12 months and now the market is almost certain the RBA will cut rates next month and that by November will have cut them again to 1%:

Make no mistake – if the RBA does cut rates next month, it is not because things are going well, but because it believes anything the government is planning on doing – including tax cuts, will not be enough.

And this really goes to what was one of the more bizarre aspects of the election campaign – the general sense from both sides that all is pretty good; plug in the growth forecasts and get your surplus, huzzah!

We remain utterly trapped in the surplus fetish, and to be honest I can’t see it ever being given up. This election, in the face of a slowing economy, neither Josh Frydenberg or Chris Bowen during the treasurer’s debate would even dare utter the thought that they might have to even reduce the size of their projected surplus, let alone put the budget into deficit should the economy slow down.

Most deficits come about due to reduced tax revenue. If the economy does slow further and unemployment continues to rise and wages do not grow as hoped, then without a nice injection of company tax from the mining sector the only way a surplus would be achieved would be by cutting spending – which would of course have the effect of slowing growth even further.

Not that there is much growth at the moment.

Domestic final demand has only grown above 3% annually for just two quarters in the past seven years, and consumer final demand has slowed drastically in the past year:

During the election campaign itself we saw that the labour market is heading in the wrong direction. The unemployment rate in the past two months has risen from 4.9% to 5.2% – the biggest two-month jump for nearly four years:

And underemployment is also rising. The seasonally adjusted rate has gone from a recent low of 8.1% in February to now sitting at 8.5% – a 10-month high:

And with that increase goes much hope of any increased pick-up in wages growth. But heck, why would we now be expecting any? Despite during the election campaign hearing guff from business groups about the need for improved wages growth, in Monday’s Financial Review, industry leaders were breathing a sigh of relief that the ALP lost and now want the Morrison government to “simplify the industrial system”.

And that simplifying will sure as heck not be about raising labour costs.

We will also now start to hear a lot of commentary about how the economy could pick up due to improved confidence. The “confidence fairy” is always wheeled out as a likely factor to improve the economy after an LNP election win.

But we need more than confidence to improve the sad state of affairs the economy is in at the moment.

The latest government bond yield curves are a good demonstration of the problem. When the outlook is good, the curve should slope upwards as inflation and growth means you demand better returns for a five- or 10-year bond than for a two-year one. That was the case last year, but now the curve is relatively flat – indicating no sense of good times to come:

Whenever the five-year bond yield (of interest rate) goes below the two-years bond yield, the signs for the economy are not good. That happened in March, and while it has rebounded ever so slightly, it remains a sign that there is little sense of strong economic growth ahead:

This does not mean a recession is coming, but that at the very least we should be more worried than usual that it might be.

And remember the government’s budget predicted sunshine and rainbows for the next 10 years:

Those predictions for consistent growth are behind their hope for a surplus and suggestions they’ll reduce government net debt to zero despite massive high-income tax cuts to come.

For now the government seems to think the confidence fairy will do most of the work – with some help from income tax cuts. If it doesn’t, and the Reserve Bank cutting interest rates does not help as much as hoped, whether this government is willing to forego its promised surplus in the interests of economic growth will be the big question of the next 12 months.

• Greg Jericho is a Guardian Australia columnist