It’s traditional to write about economics and economists at this time of year, the end of the financial year in most jurisdictions. Publishers like to ask economists to offer their predictions for the year. The cruel editors then go back a year later and mark their score cards.
Forecasts are all very well in ‘normal’ times, but few had forecast a deadly global pandemic that (so far) would infect 10.5 million people and kill 511,000. Even in Australia, where the progress of the virus has been carefully monitored, we have had 7,832 infections and 104 deaths. The long-term effect on economies – ours and every other country’s – is yet to be seen.
Trying to forecast economic trends for the next year or two has been rendered difficult by the ongoing effects of COVID-19. Nevertheless, economists will try, because they are (in my experience) optimistic people. Before we go to our panel of experts (he said, sounding like David Speers on Sunday morning), let’s recap what the politicians are saying.
Prime Minister Scott Morrison recently promised to lift economic growth by “more than one percentage point above trend” (an average 4% per year), to 2025.
Economists from 16 universities in seven states came to a less ebullient conclusion, forecasting annual GDP growth averaging 2.4% over the next four years, “tailing off over time”.
22 economists were polled by The Conversation, an independent alliance of journalist and academics, and delivered their forecasts for the next four years.
The headline view is a weak recovery, getting weaker as time goes by, amid declining living standards. The panel expects weak economic growth in all but one of the next five years. The panel comprises macro-economists, economic modellers, former Treasury, IMF, OECD, Reserve Bank of Australia (RBA),. financial market economists and a former member of the RBA board.
The panel included well-known doomsayer Steve Keen, who writes for Crikey and other publications. Keen was the economist who in January forecast a 75% probability of a recession.
The ANU’s Crawford School of Public Policy Visiting fellow Peter Martin wrote an 18-page report on the survey, warning that the results imply living standards 5% lower than what the PM expects. Moreover, the panel expects unemployment to peak at 10% and to be still above 7% by the end of 2021. Wages are unlikely to grow beyond 0.9% in 2020, lower than the rate of inflation (expected to be 1.2%).
I’m frankly surprised The Conversation found 22 economists prepared to forecast the future, particularly as it seems a second wave of COVID-19 is upon us. One economist withdrew from the panel before the poll saying, “It’s a mug’s game now”. Another who did participate said forecasting had been reduced to “guessing”, in the context of an unprecedented event.
The panel more or less agreed on expectations for incomes and production. They expect those figures to shrink when the June quarter figures are released, confirming that Australia is in a recession. The panel forecast an average 4.5% decline in GDP for 2020.
So what’s the good news?
The Government’s budget deficit will be easily financed, with the 10-year borrowing cost at 0.9% and the panel forecasting 1.4% per year thereafter and not expected to rise until late 2021.
The RBA has made a commitment to buy as many bonds as needed to keep the figure low. For this reason alone, Australia has maintained its AAA credit rating.
Mining investment is expected to continue its recovery in 2020 into 2021, after huge falls between 2014 and 2019, the latter attributed to the collapse in infrastructure projects and large LNG plants being completed.
It might be bread and circuses, but don’t forget the Federal Government is unleashing a second round of stimulus payments on July 10. Those eligible received the first payment between March and April. Stimulus payments include $750 for eligible pensioners, seniors, carers, student payment recipients and concession card holders.
Two stimulus payments totalling $1,500 might not seem like much but in terms of people with no disposable income, it is an absolute windfall.
A homeless person could spend his or her $750 on a swag or a Himalayan standard sleeping bag, fleecy pants and jacket, thick socks, underwear and a cheap pre-paid phone. They might even have money left over for smokes. If you are employed but have no disposable income, you might be tempted to yield to those ‘sale ends tomorrow’ exhortations to buy a smart TV, laptop, tablet or mobile phone.
Whether you are unemployed and poor or the working poor, the main problem is a lack of disposable income. The Conversation’s panel expects disposable income to fall on average 4.5% for the year to December 2020. Most also expect household spending to decline in calendar 2020 (by 4.3% on average).
Gloomy as this picture may be, it redresses the balance between reality and the daily ‘spin’ from State and Federal governments.
In his 1964 book, A Lucky Country, Donald Horne said Australia was “a lucky country run by second-rate people”. By that he meant that Australia was lucky to be blessed with natural resources and agricultural wealth, despite its second-rate political and economic system. Decades later, it seems, more Australians agree with Horne’s harsh assessment, which has been a set text in universities since it was published.
A 2018 survey showed that 40.56% of Australians have lost faith in the notion of democracy since 2007. Successions of administrations – Rudd, Gillard, Abbott, Gillard, Turnbull and Morrison – have evidently lost a lot of the people somewhere along the line. The Guardian mentioned this survey in a story about politicians billing taxpayers for doubtful travel expenses.
Trust and Democracy in Australia shows a majority of Australians have lost faith in democracy, from a high of 86.5% trusting in 2007 to 40.56% in 2018. As The Guardian’s Christopher Knaus and William Summers comment in their article on travel rorts, “On current trends, that would leave fewer than 10% of Australians trusting politicians and political institutions by 2025”.
We who live in this vast, under-populated democracy should be grateful for what we have. The sun is still shining, the water is potable, it’s a mild winter thus far; the supermarkets have replenished their shelves; the footy is back and life continues relatively untrammelled. (Ed: Broncos fans may not agree).
All up, Australia is a considerably better place to be than the favelas of Rio De Janeiro, the slums of Kolkata or Mexico City or even one of Donald Trump’s Republican States that thought the coronavirus was ‘fake nooz’.
Even in the UK, our far away traditional Motherland, last month’s relaxing of the COVID19 lockdown appears to have led to the emergence of 10 new hotspots across England. This unhappily coincides with news that the level of public debt has surpassed the UK economy for the first time since the 1960s.
If you are still feeling besieged, spare a thought for migrants forced out of Yemen at gunpoint by the Iran-backed Houthi militia that controls most of northern Yemen. The militia has expelled thousands of migrants since March, blaming them for spreading the coronavirus. According to a report in the New York Times this week, they were dumped in the desert without food or water.
Compare that to young Queenslanders complaining about not being allowed to dance at their local nightclub.
It’s all about perspective
(The Democracy 2025 report is available for download here):
FOMM back pages (despite the headline, this is about economics)