Australia is still in a recession.
The government has claimed that Australia dodged a recession, but they can only claim this by using aggregate data instead of per person data. And the simple truth is that people are only ever one person at a time. If we have $100 to share between five people, and then we must share the $101 between ten people, each of us has become poorer.
Australia has been in a recession for the past year, and tomorrow we will find out whether we are still in recession. The population grows at about 0.4% per quarter, so if the GDP growth rate is below 0.4% then we are still in a recession. My best guess is that we are still in a recession.
I’m not saying this because I’m a doom merchant. Indeed, I have been consistently more up-beat about the Australian economy than most other economists. The natural robustness of a market economy is able to withstand lots of shocks, including international shocks (from the American housing collapse) and political shocks (with Rudd’s stupid economic policies).
One element playing against our economy is trade. Because the government has borrowed so much from international markets (and promised to borrow much more), there had been an upward pressure on our exchange rate. The simple reality, which is not open to dispute, is that an increase in net foreign borrowing (capital account) must be matched by an identical reduction in net exports (current account). Every dollar internationally borrowed for the stimulus package has been taken from an Australian business that exports or competes against imports. The stimulus is a tax on trade-exposed businesses.
This is a bit of a dry argument, and so the opposition is using a high-profile example of imported pink batts. This unfortunately misses the broader point. It doesn’t matter whether the government spending is on domestic or imported products. What matters is how the fiscal policy crowds out trade-exposed businesses.
I am still fairly optimistic about the Australian economy. The government has done some damage, and we’re still in recession, but they won’t stop an eventual recovery.
UPDATE 2/9/09: I was wrong about the growth numbers. I had predicted growth of 0.4% or less, but the national accounts released today confirm that we had GDP growth of 0.6% for the June quarter. The main positives were household consumption (+0.5%) and increased government inventories (+0.5%), partially offset by the change in net exports (-0.3%) and a drop in private non-farm inventories (-0.4%). The good news was that private business investment (the driver of long-term growth) increased, contributing 0.3% to GDP. It looks like we’re out of recession now, hamd’allah.