At face value, the governor’s post-board statement on Tuesday means the Reserve Bank thinks the bushfires and the coronavirus will have no measurable effect on our economy.
The RBA is unlikely to be as silly as that looks.
Thus, as often the case, it’s what the governor doesn’t say that counts: Here, at last, comes increased federal government spending, and say goodbye to the much-promised surplus.
Governor Philip Lowe has the bank’s “central scenario” for economic growth unchanged from three months ago – GDP growth is supposed to pick up to about 2.75 per cent this year, compared with the last official score of just 1.7 per cent in the year to September, and hit a party-time 3 per cent in 2021.
Three months ago, the catastrophic fires were still young and the only corona that readily came to mind was a Mexican beer that needs a slice of citrus to give it flavour.
And government tax collection data since then have underlined further falls in consumer spending.
The 2020 calendar year forecast has actually been unchanged since February last year. The bank made its first guess for 2021 last August – and it hasn’t changed either.
The bank’s forecasters seem to inhabit a rosier and more stable world than the rest of us.
For the sake of credibility, it’s at least a small mercy that the dreadful phrase, “a gentle turning point”, was dropped from this month’s statement.
Ignoring the RBA’s apparent insouciance for a minute, why should the predictions be downgraded?
There are plenty of private sector forecasts around for the impact of the still-burning fires. Shane Oliver, for example, reckons they’ll knock a fat 0.4 per cent off GDP growth in the near term before some recovery later in the year thanks to rebuilding.
All other things being equal, there will still be a negative effect of unknown extent thanks to the damage done to confidence and tourism.
Did someone mention tourism?
The services sector is second only to iron ore as an export earner. It brings in nearly twice as much as coal.
Most of those services credits are from tourism and international students. And our biggest source of tourists and students is China.
Short-term visitors from China have been running at about 120,000 a month. That’s dropping to nearly zero as our border closes.
It’s unknown how long the border will be closed but Qantas is dropping its Beijing and Shanghai flights at least until the end of next month.
But it’s not just fewer visitors from China. Global tourism takes a hit when there’s a virus about – people from other countries are less likely to travel. And this is on top of the bushfire imagery.
Then there is cancelled or reduced trade to consider. Abandoned lobster exports are an example from the luxury end of the spectrum, but even that is a quick way to run up tens of millions of dollars.
It’s an open-ended disruption that includes more subtle damage. Over the weekend, Singapore’s Prime Minister, Lee Hsien Loong, pointed to a group of Singaporeans being turned away from a tourist attraction here because they were mistaken as being from China.
Government poised to spend
So it seems passing strange that the RBA would claim the Australian economy is just as happy now as it was three months ago.
On the surface, you could point to the dip in the unemployment rate to 5.1 per cent, a slight lift in inflation (it was really more a matter of core inflation not falling further), and the bank’s continued faith in ever-rising housing prices sparking more spending down the track.
But it’s more likely to be the unspoken issue: The RBA isn’t calling for more government spending now because it’s coming.
The Treasury secretary, Dr Steven Kennedy, sits on the RBA board.
The bushfires, drought and coronavirus are combining to do what mere economic argument could not – loosen Treasury’s purse strings.
And there’s another factor: The Morrison government is on the nose and needs to get spending (other than via corrupted grants) to try to claw back some confidence.
Scott Morrison has blown all his election lift and then some. For the first time since mid-April, Labor has a four-point Newspoll lead over the Coalition – and that’s without doing anything. It’s all the government’s own work.
The damage is worse than the Newspoll count as that is only a measure of the public’s lesser-of-two-evils choice. The loss of credibility goes further.
So the billions will have to flow from Canberra this year to prop up the economy. Lots of opportunities for photo ops, but this time probably not with giant cheques stamped “Liberal Party”.
No wonder Treasurer Frydenberg on ABC’s Insiders didn’t want to stick by his claim of having delivered a surplus this financial year.