The recession is over! That’s the news from the Reserve Bank, but can you believe it?

Yep, apparently the big picture on the economy is getting rosier, with RBA Deputy Governor Guy Debelle telling a Senate hearing that we’re out of recession! And that’s despite Victoria’s Coronavirus closedown.

That’s a huge turnaround and shows what the economic dividend is from an effective policy to control the spread of the virus plus stimulus from a pro-active government.

But the small picture of individual businesses and households isn’t a pretty one for all.

I told my coffee shop owner in the CBD of Sydney this morning that the RBA said the recession is over and he laughed. “Not for me. Fair dinkum, it’s hard getting out of bed some mornings,” he said. And he’s not alone feeling the pressure, with the number of businesses entering some form of administration rising by 11% in September!

That does looks really bad but you have to be careful about statistics and damn lies because the actual number was only 436. (CreditorWatch Business Risk Review)

That’s a very small number and in a sense vindicates the RBA’s claim that the worst of the bad big economy is behind us.

The March quarter saw our economy shrink by 0.3% and then in the June quarter it was smashed by the COVID-19 closure of the economy, as we knew it, and we contracted by 7%. However, in the ensuing three months (July to September) we started growing, rather than shrinking, again.

That’s huge news and all our governments, except Victoria’s, can take a bow.

But the job isn’t finished with the RBA Assistant Governor Michele Bullock saying we can’t think it’s all beer and skittles ahead. She’s the chief watcher of banks and she’s worried that in 2021 as the big picture improves even more, there will be many small pictures that will be looking shabbier.

Ms Bullock is concerned about business failures and mortgage impairments and these are bound to happen after JobKeeper peters out after March. “There is going to be further pressure on banks’ profits and capital over the coming year. The main way this will happen is through credit losses – both through business and household loans," Ms Bullock said yesterday. "While not all business failures will result in losses for the banks, it will have an impact on banks’ balance sheets.”

If the Assistant Governor is right (and she’s not always right), then the overall recovery of the economy could unearth problem businesses and households — the so-called zombie businesses and workers who could threaten the bottom line of banks.

This news might not help bank share prices today as until this assessment there has been an increasing expectation that 2021 will bring better news for banks. That’s why their share prices have been on the rise.

Since October 2 when we started to get leaks from the Budget, Westpac’s share price, as an example, has risen over 12%!

Westpac (WBC)

Against that, I think the banks actually factored in a lot more negativity than is currently showing up for the economy. The economics teams at the big four banks all expect the September quarter to be positive for growth but they didn’t always expect that.

I’d be wary of bad news because it has to be put into context. For example, the CreditorWatch Business Risk Review reported that the number of business defaults increased by 23% in September and this was the first increase recorded since May. However, when you dig deeper, you find the actual number of businesses in trouble were, wait for it, 436!

If borders are open ASAP and employers get their staff to return to their offices in the CBD and a vaccine shows up by year’s end, Ms Bullock’s worrying predictions might prove excessively negative. Who would expect that from an economist working for the Reserve Bank?