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The Aussie economy: Where are we at?

David Taylor
·Contributing Editor
·5-min read
Where is the Aussie economy at? Source: Getty
Where is the Aussie economy at? Source: Getty

The Australian economy’s still sick.

That’s extraordinary when you consider how much policy support and stimulus has been thrown at it in recent months.

The Federal Budget Papers reveal the extent of the support so far: roughly $500 to $600 billion worth.

It’s going to push Australia’s debt burden to close to $1 trillion by the middle of the decade.

Here’s the pickle we find ourselves in…

The government’s only one pillar of the economy. We also need businesses and households to spend too.

Right now, neither are game to do so. Until they do, the economy will continue to sputter, and keeping your job (let alone a pay rise) will remain challenging.

I don’t want to get you down so let me give you a little more context.

When the government pulls back

During my reporting of the coronavirus economic crisis I can’t tell you how many businesses have shown their appreciation for the JobKeeper payments.

It’s not an exaggeration to say it’s kept hundreds of thousands of businesses afloat.

But as of the 28th of September, the process of paring it back began.

The latest Bureau of Statistics payroll data show that’s already having a rather nasty effect on job security. Specifically, payroll jobs fell 1 per cent between late September and early October.

That means roughly 120,000 jobs were lost over that period as business hiring workers on JobKeeper had to top up the salaries of their staff and realised they couldn’t do it.

Unfortunately, many bosses then decided to cut those staff loose.

Business still fear the future

Indeed businesses aren’t just letting staff go as government funding recedes, they’ve also got no idea what they’re doing from week to week or month to month.

We know this because the Reserve Bank’s Term Funding Facility (TFF) has proven largely unsuccessful.

This is $200 billion provided by the Reserve Bank for the commercial banks to lend out. The latest data show just $80 billion of this money has been taken up by the banks.

The banks aren’t drawing it down because the demand from business is just not there.

As one boss put it to me recently, ‘I’m doing my budget and it’s like throwing a dart at a dartboard with a blindfold on.’

So businesses are still firing, not necessarily hiring, and can’t guarantee what they’re doing from month to month.

What’s left to boost the economy?

So what we’re left with to drive economic growth are the household and export (major economic pillar) sectors.

The household sector is still very much trying to get rid of its debt. Households are using government income support to help pay down their mortgages or credit card bills.

They’re also saving a lot. So no, the household sector isn’t going to rescue the economy.

That just leaves the export sector. While shipments of iron ore, gas and coal remain robust, Australia also earns a lot of income from higher education, tourism and just basic population growth.

To earn income from these latter sources of growth, international borders need to re-open. The only detail there from the Prime Minister is that a plan is in the works and it will be many months before we know more.

So there you have it…

You can see now why interest rates remain at record lows and why the Reserve Bank is venturing into previously unheard policy areas (like money printing).

Every effort is being made to make borrowing attractive (and spending).

It’s also why the stock and property markets remain largely buoyant – because they are being supported by the easiest monetary policy (low interest rates) in history.

This is likely to remain the status quo for the foreseeable future.

This week the Bureau of Statistics will release the latest data on inflation.

It’s likely to show it’s either largely non-existent or actually going backwards, i.e. deflation.

Deflation is great if you’ve got a job and own assets (like property) because life’s costs are likely to be falling and your asset prices will be going up.

It’s not so great if you’re renting and in insecure work. That’s because job insecurity means you’re unlikely to get a pay rise anytime soon, and your personal budget is in danger of being squeezed.

You know what would solve a lot of problems? A vaccine for coronavirus.

The reality though is that this may still be 6 to 12 months away.

My personal hope is that the pent up demand in the economy (and there’s no real way of knowing how strong that is) will be something of a silver bullet for many of the nation’s pre and current-COVID economic problems when we eventually come out of this funk.

One can only hope.

@DaveTaylorNews

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