Today Australian Prime Minister Julia Gillard had a crack at economists and the media for using the r-word in talking about the country’s economic prospects.
It continues an argument about economic confidence the government has been prosecuting for a couple of weeks, the short version of which is: don’t talk about the possibility of recession because it might lead us into one.
Wayne Swan first outlined this in an opinion piece on June 12, when he said of some media reports:
The first cited a private economist from Goldman Sachs who predicted there was a 20 per cent chance Australia would head into recession. As an economist, he’s entitled to his views – as are the hundreds of other private sector economists, some of whom are paid to push the boundaries to get their company’s name in the paper. This time, journalists who should know better blindly took the bait, splashing the word ‘recession’ all over their headlines and lead paragraphs as though this was some common credible view.
And here’s the PM today at the Committee for the Economic Development of Australia:
If I can speak candidly, the subsequent discussion has been marked by some strikingly misguided commentary.
I’m not talking here about criticism of the Government’s economic policies – not at all – I’m referring to glaring misstatements about the economy itself.
If “irrational exuberance” has an opposite it’s probably “unreasonable pessimism” and we’ve witnessed that in some quarters these past three weeks.
Gillard went on to outline some specific cases – particularly the recent reporting of data on final state demand for WA, which contracted for two consecutive quarters and led to some reporting of the state being in a technical recession, a framing rubbished by Treasury officials because final state demand doesn’t account for net exports and insterstate trade.
The full speech is here. The government is justified in pointing to the economy’s fundamental strengths, and being wary about confidence, but there are two issues.
First, it’s simply good sense to be debating the realities of shifting economic signals. Australia should be mature enough as a country to have a healthy, robust discussion about emerging risks — and ways to deal with them if they eventuate.
Second, this has always been about an outside chance of a recession, not the likelihood that Australia is about to have one. Most sensible commentators put that risk at around 20 per cent. Which means there’s an 80 per cent chance that it won’t happen. You have to like those odds.
Something being a 20% chance doesn’t mean it shouldn’t be reported vigorously, though. Since Swan’s commentary on June 12 other prominent economists including Saul Eslake and Shane Oliver have issued similar forecasts. It’s very much a “common, credible view” and from the reaction there is a sense the government has been disproportionately alarmed by the use of a word.
Surely this can be a reasonable, informed debate.
The overwhelming consensus remains that the economy will continue to grow next year, as non-mining sector activity, particularly in housing and exports, picks up. If the government wants to stay focused on this in its messaging it has plenty of platforms to do so, instead of spending time upbraiding economists and media outlets for basically outlining some realities around China’s growth rate and commodity prices, and the impacts these may have on Australia’s prospects.
The PM is right to say the economy’s fundamentals are strong, but talking about issues that need to get on the radar is a far preferable course to ignoring them and hoping it will all be OK.
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