Waiting for bad news
The government will next week announce the details of a stimulus package it hopes can blunt the effects of COVID-19 on the Australian economy.
It won’t be a “cash splash”, Treasurer Josh Frydenberg assured. “The package of measures will be responsible and will be scalable.”
Amid the bureaucratic language, his message was clear – this is a measured response to an acute crisis no one could have seen coming.
But long before the first coronavirus case was confirmed in Wuhan, the Australian economy was giving off warning signs. And, for months, the government ignored these gasps and sputters.
In the past year, the Reserve Bank of Australia has dropped the cash rate four times; most recently, on March 3, to 0.5 per cent – the lowest it’s ever been.
The central bank acknowledged coronavirus played a key role in its decision but also noted low wage growth and rising unemployment, issues that have proved stubborn, even under the glow of a promised surplus.
The RBA’s governor, Philip Lowe, has made repeated calls for the government to do something to boost the economy – aware his powers wane as the cash rate creeps towards zero. He even took the unorthodox step of throwing his weight behind calls to raise the Newstart Allowance, saying it would do more for the economy than tax cuts.
The government ignored him.
But others uniquely placed to speak to the health of Australia’s economy are worried too.
“Something is desperately wrong,” former Treasury secretary Ken Henry told the ABC in December.
Still, the government looked away.
And now, after a devastating summer riven by bushfires, with COVID-19 spreading quickly, the surplus is gone. There is a real chance Australia will slip into recession, for the first time in three decades.
In concert, the twin crises that opened 2020 will wipe about 0.7 of a percentage point from gross domestic product growth this quarter, Treasury secretary Dr Steven Kennedy told senate estimates this week. The troubles will seep into the June quarter as well.
“The economic impact will be deeper, wider than that of SARS,” Kennedy said.
Yet Treasury hasn’t modelled a recession for the Australian economy – much as it hasn’t modelled the economic impact of climate change during the Coalition’s seven years in power.
Speculation about a recession could hurt confidence, Kennedy told estimates, but the avoidance of painful realities will only bring about catastrophe – as the summer’s bushfires so tragically evidenced.
Something is desperately wrong in the Australian economy; it has been fraying for a long time.
And when it finally gives, of course, no one will have seen it coming.
This article was first published in the print edition of The Saturday Paper on Mar 7, 2020 as "Waiting for bad news".
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