Australia’s economy may be slowing down, but one economist says it’s doing better than most pundits would have you believe.
ABS figures released last week revealed Australia had recorded its worst financial year of growth since 1990-91.
But former ANZ chief economist Warren Hogan said the result – which showed the economy had grown by 0.5 per cent in the June quarter and 1.4 per cent over the year – was far from a disaster, given the severity of the housing downturn and the epidemic of low growth across the globe.
“In real terms, you could say that house prices in Sydney and Melbourne fell by 15 to 20 per cent – one of the biggest declines we’ve seen in the modern era,” Mr Hogan told The New Daily.
“And a year later, we’ve got a pretty good indication of the macroeconomic response – it’s a mild downturn, what we might have called a mid-cycle slowdown in the old days.”
Mr Hogan said the latest economic data showed Australia had successfully deflated its housing bubble without slipping into a recession – a feat few countries could claim to have achieved.
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“You look at what happens when bubbles burst in market economies through history, and it’s very rare that policymakers and the broader community are able to manage their way through the bursting of an asset bubble with such a modest macroeconomic downturn; it’s usually a lot worse,” Mr Hogan said.
“This is to be celebrated … we shouldn’t be sitting here right now saying, ‘This is a disaster, the economy’s terrible’.
“We should be saying, ‘Actually, all this reform, all the education around good finances and how the economy works, good business practices – all this has come to the fore and we’ve navigated this’.”
Past events demonstrated the flexibility in the Australian economy, Mr Hogan added, with the country successfully navigating the Asian financial crisis in 1997, the dot-com crash in the early 2000s, and the shocks caused by the commodity boom.
“This is the historical context that people lose sight of,” Mr Hogan said.
“And this idea that the government is going for a surplus and that’s a negative for the economy, it’s actually a real furphy.
“The reality is the government has been supporting growth in the past 12 months; it’s been the biggest source of employment.”
ABS figures show that government spending last quarter was the second-largest contributor to Australia’s GDP, delivering 0.5 per cent of growth.
Mr Hogan’s comments come amid heightened scrutiny into Australia’s economy, after a slew of weak economic data raised the spectre of a looming recession.
Analysts have pointed to weak retail and car sales figures as evidence the economy is on its deathbed.
Reserve Bank governor Philip Lowe has repeatedly called on the government to ramp up its infrastructure spending.
And several economists have made similar pleas – arguing greater government spending is needed to kickstart the flagging economy, as high household debt levels meant consumers wouldn’t spend as much of their tax offset as Canberra would have hoped.
In Mr Hogan’s eyes, though, increased household saving would be a welcome development, as households with less debt are less vulnerable to negative economic shocks, and the risk of a long-term debt bubble is more worrying than a temporary fall in consumer spending.
“Consumption is weak because people choose to reduce their spending. That’s not a bad thing,” Mr Hogan said.
“This isn’t hardship. This just is a winding back of uber-consumerism.”