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A statistical blip in a rolling recession

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Η?*?" M edia R elease Leader of the Opposition 67/91

21 March 1991


The small 0.6 per cent increase in the Gross Domestic Product in the December Quarter 1990 is a statistical blip in a rolling recession.

This figure is influenced by the one-off effects of a pre-tax change spurt in gold exports (including the re-export of gold imported to be refined here) . If that effect is excluded, the GDP figure is closer to zero.

A slowdown in the rate at which stocks are falling, continued strength in some mining exports and the ongoing impact of the recession on imports provided the remaining growth impetus.

It is certainly no cause for rejoicing.

Most noticeably, the trend estimates remain headed down - the six month decline in production revealed by today's figures is the worst since 1961 - and one only needs to look at the rising

levels of unemployment in the March Quarter to see that it is far too early to say that the recession has bottomed.

Indeed, the December Quarter outcome is consistent with the view expressed by the Coalition (and Senator Button) that Australia may face a "rolling recession" as different sectors and regions of the economy are affected by the deflationary forces in


In the first phase we have seen a sharp drop away in personal consumption and business investment, especially on plant and equipment as a consequence of Mr Keating's reliance on high interest rate policies.

That phase may have further to run yet and some indication of the pain being felt by average Australians is that personal

consumption spending did not grow at all in real terms. Given continuing population growth, that implies a fall in per capita living standards.

That pressure on living standards has contributed to a further fall in the household saving ratio which (notwithstanding the volatility of this measure) is now well below anything seen in a decade. That may indicate that personal consumption levels will

remain sluggish for some time yet.

And notwithstanding the jump in non-dwelling construction in the December Quarter, surveys suggest that further falls in business investment lie ahead.


None of this is to suggest we may not see what some have

described as a "dead cat" bounce later this year.

But we have yet to see the full impact of the rural crisis or the slowdown in world economic activity on Australia.

As Mr Keating himself has been pointing out lately, it is

important to take account of the impact of shifts in the terms of trade on the real incomes of Australians.

On that basis the recession continues. GDP adjusted for the impact of the terms of trade deterioration (flowing from falling export prices and the impact of devaluation on import prices) fell by 0.5 per cent in the Quarter - the third successive

quarter of falling real income.

This is a better measure of how the national cake available to Australians is faring in a still slowing world economy.

A further indication of the impact yet to come from the

international downturn is the reported build-up in mining stocks in the December Quarter. Again, a factor which may have

diminished importance in coming quarters.

Despite the gravity of the recession, the inflation measures remain high. The personal consumption deflator rose 2.5 per cent on a fixed-weight basis and, even after allowance for the

transitory impact of petrol prices, Mr Keating would be hard pressed to use that outcome as a basis for easing monetary


One footnote to today's numbers is the serious savings/investment imbalances which are emerging. While Mr Keating imprudently trumpets his success at lifting net exports and the contribution which that will make to stabilising external debt, analysis of

the net savings outlook should give him pause to reflect.

Household and public sector savings are collapsing (with the Public Sector borrowing requirement perhaps running at an annual rate of over 2 per cent of GDP). The only reason therefore why our call on foreign savings (as measured by the current account deficit) has been abating is the lift in total net private sector

saving flowing from the large fall in private sector investment.

But we need more private investment, not less, to modernise our economy. So Mr Keating should have a long way to go to convince the nation that his policies are "now setting Australia up for unsustainable low inflationary growth through the 1990s".