17 October 2021
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No recession

Peter Switzer
26 June 2009

It’s official — Australia is NOT in recession! And no matter what negative, doomsday merchants want to say to justify their incorrect calls, there’s no official recession here.

This is great news and will help a recovery in consumer and business confidence. This in turn will boost business investment sooner rather than later and that’s a great thing for the economic recovery that lies out there, as well as the people who now won’t lose their jobs.

More caution required

If we had to bear newspapers, radio stations and television news services all saying we’re in recession, this would have sent both business and consumer confidence down. It would have also deepened the recession and lengthened it, adding more to the numbers in the job queue.

This is why I get angry about economists and commentators warning us that things will get worse. They could be right and they could be wrong, but being too cocky about an economy is fraught with danger.

I am an economist but I know the impact of China’s recovery, the 4% cut in interest rates and the Rudd Government’s stimulus packages are hard to calculate and that’s why being certain about our economic destiny puts a so-called expert on precarious footings.

Economic debate in Australia

For those wondering about the link between the rise and fall in real Gross Domestic Production and why it defines a recession and ultimately what happens to jobs, now is the right time to clear up the matter.

By the way, I believe Australia is one of the most economically literate countries in the English-speaking world, but it’s up against very little opposition. Inexplicably, most countries’ newspapers I encounter around the world, do not conduct economic debate at the same level as we do.

Keating’s lessons

I blame Paul Keating who really engaged the Australian public between 1983 and 1996 in what was what about deregulation of the financial system, tax reform, micro-economic reform, reduced protection, workplace reform linked to productivity, a floating dollar and even concerns about foreign debt.

These terms and issues were his stock-in-trade as he set about getting us ready for the 21st century.

His early work, which was carried along by the Howard-Costello team between 1996 and 2007, partly explains why our economy has held up well with the relentless winds from the global financial crisis.

He crystallised our challenges and what we had to do when he made the famous ‘banana republic’ comment talking to John Laws on Sydney radio in 1986. This comment sent the dollar down to record lows and forced Australians to embrace better work practices, tax changes and more productive attitudes.

All of these changes helped our real GDP grow so strongly for 17 years in a row and helped us avoid a recession — just as we have now.

Our Gross Domestic Product measures our total Australian production. As we produce more goods and services, we increase the incomes of the Australians who make the goods and services — the business owners and the workers who pocket profits or wages.

Do the maths

To understand what lies behind how the Australian Bureau of Statistics calculates our GDP, imagine our total production was measured in 2008 at $100, just to keep it simple. If in 2009 it rose to $102 when they counted the goods and services produced, then we would say there was 2% economic growth.

As there’s more production, then there would be more demand for raw materials, buildings, etc, as well as a need for workers. That’s the link between rising GDP and employment.

Alternatively, if we move into a deep recession, then our GDP falls and demand for workers falls and unemployment rises.

Still to come

The news on June 3 - remember that date, Prime Minister Rudd and Treasurer Wayne Swan definitely will - suggests that our economic downturn will be milder than most economists and commentators have been predicting.

So, what lies ahead for our economy?

The one big negative is that the surveys for business investment have been pretty poor, and it’s this that determines whether we grow quickly, slowly or contract.

The better news from Wall Street, the American economy, the Chinese economy and the current level of interest rates could save us from going into a recession in the future. We now have to hope that consumers make a comeback and the economy starts creeping back into more convincing positive growth territory.

The outlook

I believe that will happen gradually and many Aussies will be more likely to spend up at the end of the year — a plasma TV Christmas is certainly on the cards.

The experiences of high interest rates in 2008 followed by the fear of losing your job over 2009 will not be erased from the minds of local consumers very easily and this will keep a lid on economic growth.

However, by 2011 the global recovery will be really kicking in and that means the Rudd Government’s predicted 4% plus economic growth in 2011-12 looks very believable. That’s when Australian life as we knew it before the credit crunch will get back to something that looks like normal.

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