The national accounts were released today, with a recorded increase in our Gross Domestic Product (GDP) of 0.4% between Dec 2008 and March 2009. This means that Australia has avoided what is sometimes referred to as a “technical recession” (ie two quarters of negative growth).
The first thing that needs to be stressed is that Australia did experience a “per-person recession”. Population growth is about 0.4% per quarter and the last four quarterly GDP growth figures have been 0.3%, 0.2%, -0.6%, 0.4%… so while the country may be producing more as a whole, each person is producing less.
My optimism about the current recession is on the public record. However, before any optimists gloat about the latest figures, they need to be put in the appropriate perspective.
First, it should be remembered that GDP measures how much we produce, not how much we consume. The difference is net exports. And the national accounts show that gross national expenditure decreased by 1% in the March quarter.
The reason that GDP grew was that exports increase (2.7%) and imports decreased (7%).
Our exports have held up fairly well in general. While export volumes dropped by 13.9% in Japan, 10.2% in Singapore, 8.9% in Korea, 7.5% in China, 7.3% in Germany, 6.5% in the USA, 4.7% in Canada & 3.9% in the UK… they only decreased by 0.8% in Australia (in the December 2008 quarter).
The fact that Australia’s recession will be smaller and shorter than the rest of the world is due to our better starting position, no large underlying problem, and our relatively strong trade performance.
It is not because of government policy.
True, the government handouts have given a temporary boost to consumer spending. In the March 2009 quarter household consumption grew by 0.6%. Without the handouts this would probably have been lower. But this “benefit” is temporary and marginally important at best.
Importantly, the driver of long-run economic growth and employment is private business investment, and that has declined this quarter by 6.1%. While the government will be quick to take the credit for the 0.6% household consumption number, they will be slower to accept the blame for the -6.1% business investment number. And it’s true that business investment would have been negative anyway. However, there are reasons to believe that government policy harms business investment… both due to crowding-out and by increasing the political risk premium.
But I’m still an optimist. While the government may delay private investment through their bad policy, they cannot stop it rebounding eventually. Touch wood.
UPDATE 04/06/09: An edited version of this article was published at Open Forum.