Thursday, June 04, 2009

Here's how we dodged it

Our econocrats are really, really first rate

A sudden burst in exports and a round of early and effective stimulus payments have made Australia the envy of the developed world, enabling it to avoid a so-called technical recession at a time when every other major advanced economy is going backwards.

The March quarter national accounts show the Australian economy actually growing in the March quarter at a time when the economies of the United States, Japan, Canada, New Zealand, the United Kingdom and most of mainland Europe are in reverse.

The Treasurer and Prime Minister have seized on the turnaround producing Treasury estimates showing that without its "timely and targeted" multi-billion dollar stimulus payments Australia would have joined its peers in recession.

"Without the December stimulus the economy would have gone backwards minus 1.1 per cent in the December quarter - instead it fell 0.6 per cent," Mr Swan said.

"Without the March stimulus the economy would have contracted 0.2 per cent in that quarter. Instead it climbed 0.4 per cent."

The result is a sharp "v-shaped" economic downturn in just one quarter...

...enabling Australia to avoid the double-headed downturns of other advanced economies just as it avoided the US "tech wreck" recession of 2001.

"This is a tribute to the resilience and the courage of our people in the midst of the worst global recession in something like 75 years," said Mr Swan.

"Had we pursued the strategy recommended by the Opposition and Mr Turnbull not to invest and not to provide payments, cash payments to pensioners, carers and others, Australia would be in recession today."

The Opposition Leader hit back accusing the Prime Minister of declaring "mission accomplished".

"The only thing missing was an aircraft carrier and a bomber jacket," Mr Turnbull said. "Australia's domestic economy remains weak. His spending and borrowing binge contributed very little, very little indeed."

Net exports added an extraordinary 2.2 percentage points to GDP, the second-biggest gain since the second world war. Rural exports surged 18.3 per cent, offsetting falls in exports of cars and other transport equipment, down 25 per cent, and coal exports, down 13 per cent.

"This is an astounding, remarkable result, considering that demand in our trading partners was falling at the fastest rate since the 1930s," said RBS Australia economist Kieran Davies.

"But although export volumes were up, lower prices meant our income actually fell, a very rare event. This drop in income, combined with the upward trend in unemployment suggests we really are in recession."

"It's an income recession," said Commonwealth Bank economist Michael Blythe. "Household incomes, company profits and investment are down, but household spending is solid."

Consumer spending jumped 0.6 per cent in the March quarter as the household saving ratio plummeted, suggesting that the December and March economic stimulus payments were largely spent rather than saved as had been feared.

"Our leaders decided to go early, go hard and go consumer," said TD Securities strategist Stephen Koukoulas. "Their cash handouts boosted consumer demand and their interest rate cuts improved cash flows. It’s great to see policy makers make a difference. Wayne Swan and team have every right to be thrilled with the way they have engineered a soft landing when the world has been through the deepest and darkest recession in 75 years."

Woolworths chief executive Michael Luscombe agreed. "The Treasurer and Prime Minister would be feeling pretty good about themselves. We have to give them a great deal of credit for getting on the front foot and making sure the
economy is solid.''

The share market ASX200 index soared through 4,000 points to a seven-month high on what traders said was a feeling that "everything has improved".

"There's a real feeling that if you don't buy now you'll miss out,'' said Macquarie Equities associate director Lucinda Chan.

Opposition Leader Malcolm Turnbull declined to give the government credit saying its spending had had "no discernible effective positive economic impact".

But he was undermined by his Treasury spokesman Joe Hockey who earlier told Fairfax radio, "of course there have been jobs created by the expenditure of hundreds of billions of dollars, I mean that is a no brainer".

In Parliament Mr Turnbull hammered the question of debt arguing the growth figures showed Mr Rudd had run up "too much debt, too recklessly, too soon".

The Prime Minister replied that the Opposition would prefer to "fiddle while Rome burned".