Australia plummets below Greece

Oct 21, 2019

At last Scott Morrison’s torpid government realises that it is in danger of being mugged by reality.

Not yet, of course – there are still a few peaceful weeks in which ignorance will remain bliss, in which wishful thinking may be preserved in the hope of another ScoMo miracle. But after last week’s report from the International Monetary Fund, it is no longer feasible to pretend that the Australian economy is in safe hands and can continue to muddle through without at least a modicum of intervention.

The IMF is, as always, tactful and cautious – the problem is a global one, many of the issues are beyond the control of individual governments, the international slowdown will not be countered unless the international situation can be remedied. But even within the scenario of doom and gloom, the Australian malaise stands out. Growth will be slashed over the coming year, and the little Aussie battler, the survivor of 28 years of uninterrupted positive progress, is in real trouble with no obvious relief in sight.

Australia’s growth is now expected to be feebler than that of Greece, long derided as a failed economy, the basket case of Europe. The apologists point insist that the comparison is absurd – Greece actually went into recession, and is now recovering from a very low base. But that is precisely the point: Greece is on the way up, while Australia is on the way down.

And it is not a gentle decline, a managed correction: it is a plummet. The new figures forecast indicate a drop of more than a full percentage point in just over 12 months, a plunge of nearly a third on the earlier prediction. This is not just a minor glitch – it is a dive into the unknown. But it isn’t entirely unexpected; serious economists, notably those from the Reserve Bank, have been warning that the wheels have been falling off for many months, and that the government’s response – or rather the lack of it – has been utterly inadequate to reverse the trend. Morrison and his troops, especially his determinedly optimistic treasurer Josh Frydenberg have simply denied the bad news, and last week they continued to hold their leaky lines: this was not a time for panic, what was needed was the calm, stable and measured approach that could only be delivered from the coalition.

The trouble is that the approach has been less calm, stable and measured than catatonic; in keeping faith with his quiet Australians, Morrison has been hitting the valium, sedating his denialism with assurances that even if there were a few headwinds, things could have been much worse – and would have been if the reckless, destructive, wrecking-ball policies of the Labor had been in play.

Well, that is at least debatable – but in any case it is utterly irrelevant. Labor, as Morrison keeps telling us whenever he gets the chance, in fact lost the last election, and its former policies no longer apply — nor is it likely that they will be rehashed in 2022, not that anyone – let alone Morrison – is looking that far ahead.

His hypothetical fairy story exists entirely within his own delusional bubble. Screaming about $387 billion worth of new taxes (they weren’t, in fact, but why spoil a good lie) has nothing to do with anything. And bragging about all the new jobs he has created, which have only kept pace with the rate of immigration, is almost equally meaningless at a time when real per capita living standards are dropping.

Morrison and Frydenberg tried to make a big deal over the September unemployment figure – it fell marginally, but only because the participation rate also dropped, indicating not that things were improving, but that some discouraged punters had now given up trying to find work. And the bad news is that the IMF reckons that not only will unemployment be stuck in doldrums for the next two years, but it might even get worse – as might just about everything else.

The RBA’s ambition for a 4.5 per cent number, which it says is necessary to start wages moving again, look further away than ever. Not much to cheer about, and given the prestige of the international body, even Morrison is reluctant to shoot the messenger. So instead, he is preparing to try and find a few more helpful envoys of his own.

But first, as always, procrastinate: wait for next month’s figures, because improbably, but just possibly, the long-awaited trickle of the interest rate reductions and the tax cuts will finally dribble through to a cash splash from consumers and investors alike. Then the economy will rebound like an ibex on steroids, glory, hallelujah. And if – when – that does not happen, just wait a bit longer, until the silly season, when, with any luck, there will be plenty of distractions before this year’s MYEFO is revealed.

Morrison’s spin doctors are presumably already massaging the unavoidable Mid-Year Economic and Fiscal Outlook, because this time there will be no place to hide: but this does not mean they will not obfuscate and dissemble, because that is what they do. But even Frydenberg is preparing the ground for some kind of tentative back down – let’s face it, he would look pretty silly if he finally delivered his cherished surplus in the depths of a recession. So, there are just visible signs of movement – come December, the situation could be reviewed. Obviously, the surplus must remain sacrosanct, but it could, perhaps, be shaved, tweaked a little to provide a touch of the stimulus which just everyone else has been pleading for months. Even Morrison is wavering – he has suddenly discovered that surplus is not just an end in itself, but an economic tool – perhaps like himself. A surplus is predominantly, insurance against economic stagnation.

And the first step is for Morrison and Frydenberg to admit the clear evidence that the stagnation exists. They may not accept the verdict of the IMF, a bunch of unelected foreigners, but if it is confirmed by MYEFO, this will be the king hit – reality will strike back. And then, merry Christmas.

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