More than usual, right now economic data is a Rorschach test wherein different people will see different things, and mostly what they want to see. Are we out of a recession? How badly or how well are we performing? There is multiple data around to make the case for whatever argument you wish.
And it will continue to be so for a while.
That’s good, very good in fact.
But it also showed that our economy in that quarter was 1.1% smaller than it was in the December quarter of 2019.
That’s bad, very bad … but not as bad as in June 2020 when the economy was 6.3% smaller than it had been in June 2019.
The problem is quarterly and annual changes are going to be pretty wild for a while.
Changes from one period to the next are not just about how good things are now, but how bad they were beforehand. Given the first six months of last year were historically bad, anything relatively decent now will look brilliant by comparison.
This is important because the Morrison government desperately wishes to roll back any stimulus and so a positive reading of the economy is one that adds weights to their argument.
But it is difficult because while the initial impact of the pandemic that wrecked the economy is behind us, the impact remains – including in the data.
Normally quarterly changes are much more erratic than annual changes, but we already know that the June quarter of this year is going to show a record annual growth – probably over 8%.
Why so? Not because I know that April, May and June are going to be the greatest three months Australia economy has ever had, but because April, May and June last year were the worst three month we’d ever had.
The problem is the way we frame things.
Yes, the economy is better and will be better than it was last year when things were awful. But a better economy is not a strong economy. Nor does the growth of the economy now tell us anything about the fall of growth previously.
Had we not had the pandemic it’s a good bet that the size of Australia’s economy in real terms would now be above $2tn – that is where it was headed based on the decade before the pandemic hit.
Instead, it is 3.5% below that level.
Rather than growing in 2020, as economies are meant to do, it fell back to the size it was mid-way through 2018 – essentially 18 months lost.
How long does that take to recover?
The Reserve Bank last month estimated our economy would grow by 3.5% till 2023 whereupon it would slow to 3%.
If that were to occur (and that would be very strong growth), the economy by the middle of 2023 would still be more than 1% smaller than we would have expected it to be prior to the pandemic.
Some of that is due to smaller population growth; much of it is because it takes time to recover.
The question is when a government should declare the battle has been won and thus it was time to ease support.
The Morrison government would like to do this sooner rather than later – and focusing purely on growth compared to the worst of times will make that sound logical. But it will likely hide just how much has been lost and how far we have to go to get it back.