13/02/2020 - 11:59

Saul’s call: March quarter warning

13/02/2020 - 11:59

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Australia’s economy could go backwards in the March quarter, although a recession is unlikely, one of Australia’s top economists has warned.

Saul’s call: March quarter warning
Two quarters of negative growth would make a recession. Photo: Gabriel Oliveira

Australia’s economy could go backwards in the March quarter, although a recession is unlikely, one of Australia’s top economists has warned.

Former ANZ Banking Group chief economist Saul Eslake told Business News the drought, bushfires and coronavirus shocks might lead to a contraction in GDP in the first three months of 2020.

Mr Eslake was in Western Australia on a speaking tour with the Grains Research Development Corporation.

“It could be that the combination of those three shocks could give us a quarter of negative growth,” he said.

“We had one in 2011 when we had really bad floods in Queensland, and at the same time there was a series of storms off the Pilbara that blocked iron ore exports.

“When the economy is travelling slowly it is more vulnerable to shocks.”

The June quarter data should come in positive, Mr Eslake said, meaning the country would avoid a technical recession.

He said that would be helped by a return of tourism and an end to supply chain disruption as the coronavirus impact waned, combined with the rebuilding of bushfire areas getting under way.

The latest GDP data is from the September quarter, with December numbers due for release within weeks.

In seasonally adjusted terms, GDP growth was 1.7 per cent in the year to September.

“The government could do more, [and] in response to the three economic shocks that Australia is having to deal with … the government actually is doing a bit more,” Mr Eslake said.

“They are, it would seem now, willing to let their surplus go.

“I think it is the right thing to be doing in the circumstance.”

The federal government has been projecting a surplus for the 2020 financial year since May 2018, although ministers more recently appear to be backing away from that pledge.

Long-term

Slow population growth, labour force growth and productivity growth had been big problems in developed economies in the past decade, Mr Eslake said.

These were long-term problems.

In Australia’s case, population growth had been higher than in some other developed countries, boosting GDP data.

But it also meant higher unemployment as new jobs were not being created fast enough to soak up growing labour supply.

This made for an interesting contrast, Mr Eslake said.

While some other countries had much lower unemployment rates, that was partly driven by low population growth, he said.

Take the example of the US, which has unemployment of about 3.6 per cent. Its population growth has been estimated at 0.5 per cent in 2019, according to the country’s Census Bureau.

Australia has unemployment of 5.1 per cent and had population growth of 1.5 per cent in the year to June 2019.

In many countries the ageing population was proving a barrier to growth in the labour force.

Mr Eslake said productivity growth around the world had also been weak because of a resistance towards trade and because of the nature of technological change, among other possible factors.

“International trade has slowed,” he said.

“That’s partly as a result of recent policy decisions, but more stems from backlash against globalisation since the early 2000s.

“Trade is a force for productivity growth because in order to succeed in international markets you have to be pretty competitive.”

Mr Eslake said innovations in recent years had served to enhance consumption experiences more than they boosted workplace productivity.

“By contrast with the the early days of the internet and the development of mobile telecommunications, are Facebook, Google, Instagram and Snapchat boosting productivity?” Mr Eslake said.

“I suspect the nature of technological change in the past 15 years has moved away from boosting productivity.”

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