It’s too soon to declare the recession over, but things are looking good

It’s that time of year again when finance columnists, such as my good self, need to fess up and reveal how our predictions for the year fared against reality. I’m feeling pretty good about mine. On January 9 this year, I made this bold prediction: “There is a higher than usual chance things are about to get very weird. Like, deeply weird.”


Illustration: Dionne Gain
Illustration: Dionne Gain Credit:

Although, it’s perhaps less a testament to my future-seeing abilities and more to my wisdom to know that newspaper opiners should proffer their opinions in sufficiently vague tones.

A year ago, of course, we didn’t know about COVID-19. The speculation then was all about whether some other economic calamity may force our Reserve Bank in 2020 to unleash “unconventional measures” to boost the economy. I offered a checklist of novel economic terms with which one ought to familiarise oneself.


Unconventional measures? We got them. Quantitative easing? Yes, indeed. Extended liquidity operations? Don’t mind if I do. We didn’t quite get to negative interest rates or helicopter money. But hey, there’s always next year.

And although we did not see helicopter money in 2020 – which is technically delivered by central banks to citizens – we did see Canberra doing a fine job of taking to the skies to drop bucket-loads of cash handouts, job support payments, early access to super, tax cuts and more.

Yep, things got deeply weird in 2020. We stayed at home. We stockpiled toilet paper. We doused ourselves in hand sanitiser.

Meanwhile, in addition to our central bank’s decisive actions, our politicians, too, threw off their political hairshirts and did what needed to be done. A Liberal conservative government launched the biggest welfare policy in modern history via JobKeeper and racked up a trillion dollars in debt on the national credit card. You see? Weird.

As a direct result, Australia’s corona-ravaged economy has emerged from 2020 remarkably strong. Although it’s still too soon to declare our recession over.

Yes, in a technical sense, we know that economic output expanded in the September quarter, as opposed to contracting, as it did, in the March and June quarters – the “technical” definition of a recession. But sensible people don’t hang their hats on that.

In early November, before those GDP figures were released, I asked our Reserve Bank governor a simple question: “Hi Phil. Is the recession over?”

To which Philip Lowe gave a simple reply: “No, the recession isn’t over … we expect GDP growth to be positive in the September quarter, and I’m hoping it’s solidly positive. But a lot of people are out of work, a lot of businesses have closed, and a lot of people don’t have their normal hours of work. The level of output is, I think, right through this year and next year, going to be below where it was at the end of last year. So on any reasonable definition, we’re in a recession, except for the technical definition of two quarters of negative growth.”

Lowe’s comments, of course, also preceded by about a week the announcement by Pfizer of a vaccine with 90 per cent-plus effectiveness. It may yet prove to be that we have turned the corner on recession.

But then there’s China.

In my list of things to expect in 2020, I included “geopolitical risk”. As things turned out, that risk profile took on a decidedly more reddish hue than the tangerine-tinted tensions I expected (bye-bye Donald).

China’s new trade barriers are imposing real and large pain on our exporters, who can only scramble to find alternative buyers for their goods. Jobs are on the line.

Counterintuitively, however, so far it’s been a lovely trade war for federal finances. Thanks to a number of factors, including uncertainty about China’s next steps, the price of Australia’s biggest export – iron ore – has surged to multi-year highs of about $150 a tonne. That compares with Treasury’s forecast that the price would fall to $55 a tonne by mid next year.

This is set to provide a tidy boost to export earnings and the federal budget bottom line. How long that will last is anyone’s guess, of course.

Looking forward, I fear those yearning for a return to “precedented” times in 2021 may well be left disappointed. This year looks very much like what statisticians call a “series break” – a point in time when the methodology of a survey changes to such an extent it is no longer possible to reasonably compare results from one period to the other.

Life has changed. We have changed. But we’ve also proved ourselves up to the challenge in so many ways.

In an interview with Treasury Secretary Steven Kennedy a few months ago, I asked him for a word to sum up 2020. His initial response was simply “busy”. But on further thought, he offered another: “adaptive”.

“It has been a year where we have just had to adapt to the circumstances that have turned up in front of us constantly throughout the year.”

So, as we prepare to wind down for the festive season, may I wish you a restful break and offer this reassuring thought for 2021.

No one really knows what next year has in store for us. But however weird it gets, 2020 has proved: we will adapt.

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