Obviously, the number is very bad. Australia’s economy contracted by 7% in the June quarter, which is the worst quarterly fall on record, and a million Australians are unemployed.
At the beginning of the pandemic, econocrats were hopeful this would be a V-shaped recovery. Now, nobody has been talking about a V-shaped recovery for some time.
But the point is not the negative number in the gross domestic product column for the June quarter of 2020, even though the number is terrible. The point is the event the number heralds.
Australia has grown for 30 years – an extraordinary run.
But now we’ve joined the recession club.
Recessions are wounds. They leave deep scars. Recessions shape the sensibilities of a generation.
I graduated from university during the downturn in the early 1990s. I lucked out and found a job, but many of my friends struggled. The legacy of recessions is they teach people their economic security is entirely situational – circumstances can change in a heartbeat. This is a shadow people never entirely throw off, whether they transit through a downturn more or less unscathed, or whether they are part of the cohort of people who lose their jobs and never work again.
Recessions also disrupt politics within nations and between nations. We saw that profound disruption after the global financial crisis, but Australia was shielded from the worst of it, because we avoided the recession that hit much of the rest of the world. But we understand the fundamentals enough to know that Donald Trump made it to the Oval Office to stoke discord in a riven republic, and Britain endured a protracted political crisis about leaving the European Union, which has its roots in economic downturn.
So these are big events. They change the course of history.
Let’s step through some facts. Australia’s economy was weak going into the pandemic, and the pandemic has belted it for six.
This contraction is incredibly sharp, and Wednesday’s national accounts are a window on a country avoiding discretionary spending, and saving, as if their lives depended on it. Consumers are incredibly cautious, and the economy will not rebound until their confidence is restored.
Scott Morrison has chosen to taper income support in September, which was always a risky call given where the economy currently is.
The national accounts reveal the obvious: fiscally speaking, it is too early to be standing on the exit ramp. What’s clearly needed is a growth strategy, and sustained, likely large-scale stimulus, given Covid-19 will be a pandemic with a long tail.
But the prime minister is under pressure from colleagues to wind back support. The prevailing view inside the government is Canberra is bankrolling restrictions imposed by state governments, and that needs to stop.
Morrison has demonstrated during the pandemic he is prepared to do whatever it takes to avoid the worst-case scenario – he’s approached this very profound crisis as a problem solver, not an ideologue. He’s changed the identity of the government in full public view.
But we have now reached a point in the crisis where Morrison is battling several cross-currents, and the problems he faces are not easy to solve.
I said earlier Australia needs a growth strategy and it needs large-scale stimulus to weather this very profound event.
On the first point, it is easy for Liberals to deliver a growth strategy that conforms to their world view. Morrison is working one up for the October budget: entrench the role of fossil fuels in the economy, cut taxes, pursue deregulation, pursue labour market flexibility.
Party like it’s 1985.
But the scale of the economic downturn, both here, and around the world, suggests that deeper thinking will be needed. The environment is strongly suggestive that what’s required to turn things around will be more than reverting, mindlessly, to the orthodoxies that have dominated postwar economic thinking.
Morrison has been able to shape shift to manage the crisis, but a big question remains about whether he can be the leader Australia needs during the recovery.
