In many ways after almost 30 years without a recession, the hubris surrounding the Australian economy is quite similar to that which surrounded the Cunard ocean liner, Titanic.
When the Titanic set off for its fateful maiden voyage in April 1912, many of the passengers aboard believed the vessel was unsinkable — that nothing could possibly impede the Titanic’s voyage to New York.
Today many believe that after dodging so many crises and economic shocks that severely impacted nations across the world for decades, Australia’s economy is unsinkable.
But as 2020 continues to unfold, like the Titanic, Australia’s economy has hit the iceberg that is the demise of its record run of headline GDP growth — in the form of the COVID-19 pandemic.
In an ironic twist of fate, the reaction of the Titanic’s passengers and members of the Australian public to their respective crises has been remarkably similar.
In the minutes following the Titanic’s collision with the iceberg, some passengers refused to believe that the situation was serious. With some going as far as playing a game of football with chunks of ice that had been strewn across the deck during the collision.
Despite warnings from the International Monetary Fund (IMF) and a legion of other organisations that the world faces the “worst economic crisis since the Great Depression”, many Australian’s continue to behave as if nothing is wrong.
Yet despite the enormous scope of the current challenges and the consensus that the road to recovery is a long one, the Morrison Government seemingly continues to believe that its overly optimistic narratives of a swift economic recovery will somehow come to pass.
In reality, economists have generally concluded that the Morrison Government’s ideologically driven plans based on tax cuts, workplace relations reform and fossil fuel subsidies are likely insufficient to drive a strong economic recovery.
But with billions of dollars a week flowing in to the economy from various Government stimulus programs and superannuation withdrawals, many Australian’s seem convinced that the Morrison Government will deliver the nation from the crisis — as every other government has for almost 30 years.
With Prime Minister Scott Morrison currently holding near-record level approval ratings in the polls, the public appears to have given the Coalition's economic response plan their seal of approval. Despite warnings from analysts that the economy may be deteriorating further, even with record peacetime deficit spending from the government, and forecasts from Treasury and the Reserve Bank that unemployment will continue to rise, consumer spending continues.
In recent months, retail sales have skyrocketed to levels well above the pre-coronavirus trend and they continue to remain strong, even though the initial bounce due to pent up demand from the lockdowns back in March and April has long passed.
Like the passengers aboard the Titanic, Australians are in for a splash of cold water on their relatively rosy outlook, albeit on a longer timeline.
It has been estimated that almost $84 billion worth of stimulus will be removed from the economy during the fourth quarter of the year. That represents a whopping 17 per cent of pre-coronavirus quarterly GDP.
Depression is sometimes defined by a ten per cent reduction in GDP. Effectively, the tapering of stimulus measures amounts to something resembling a mini-depression in and of itself.
While the steepness of the "cliff” will be decreased by the Government’s recent loosening of the criteria to qualify for JobKeeper, the scale of the withdrawal of stimulus is unprecedented in the peacetime history of the nation.
As much as we may wish it wasn’t so, the writing is on the wall that the economy and the Australian people face a tough road in the years ahead. For that reason, now more than ever the Morrison government needs to be providing a more realistic picture of the economy’s prospects for the months and years ahead.
Ultimately, a long term plan for sustainable economic growth and broader prosperity for the Australian public is required. Not a continued push for the Coalition to fulfil its ideological wish list as the economy continues to sink beneath the icy waves.
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- The recession we didn’t have to have
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