There comes a point when the impact of a recession fully hits – when you realise this is not just some blip that lasts a few months and then we all carry on. Recessions last and their impact continues for years. This week the IMF released new figures which seemingly provide some good news but actually serve to show just how terrible the future is looking.
Since the virus hit there has been a belief, maybe a hope, that this was just a momentary thing. Sure, the fall would be sharp and deep, but the recovery would be fast coming.
You could hear it in the talk of “snap back” from the prime minister and treasurer.
There was almost a sense that this recession is not really a recession – because this was driven by health, not the economy. The underlying economy, this argument went, was solid (the foundations were strong!), and thus once those restrictions were dispensed with, we would be back as good as ever.
The problem was that the foundations were not strong (productivity growth, household incomes and the domestic private sector were all flat-lining). Just because the causes of this recession were unusual does not alter the fact that all recessions bring with them massive job losses and a fall in production.
And this recession is the worst we have seen since the Great Depression.
This week the IMF issued a revised set of estimates for GDP growth this year and the next.
And there was some good news to be had.
Josh Frydenberg, as you would expect, was all over the good news.
He tweeted that “Australia is the only developed nation to have its 2020 growth forecast upgraded by the IMF.”
This is true. In April the IMF forecast our GDP this year would fall by 6.7%; now it estimates it will “only” fall by 4.5%.
Unfortunately though, the treasurer neglected to point out that, other than Malaysia, Australia had the biggest growth forecast downgrade for 2021.
In April the IMF estimated our economy would “bounce” back in 2021 with 6.1% growth; now it sees just 4%.
Overall, the IMF’s changed estimates are such that they expect our economy at the end of 2021 to be virtually the same size they were expecting it to be in April. Hardly a ringing endorsement that government policies are doing better than expected.
What this means is we need to very quickly disabuse ourselves of the notion that the economy will “snap back” in 2021 and all will be well.
Under these latest forecasts Australia’s economy next year would be 0.7% smaller than it was last year. That is the first time since 1983 that our economy would be smaller than it was two years earlier.
But even that rather hides the impact.
In October the IMF estimated that for the next five years our economy would grow by around 2.5% each year. That is pretty miserable growth, but it was largely in line with the average since the GFC.
But now, even with these new and improved estimates for our economy, by the end of next year we are still tracking to be 5.3% below where we were expected to be.
That is the equivalent of around $105bn less being produced – or roughly the total amount produced in a year by the entire manufacturing industry.
That is a chasm of economic waste.
If the economy was to keep growing at (a very strong) 4%, it would take us until 2025 to get back level with where we were expected to be before the virus. If it grows at the more realistic 3% from 2022 onwards, we will not get back on par until well into the 2030s.
The debate very much needs to shift from the language being used in January and February.
Forget “fundamentals being strong” and “sensible budget management”. It was spin then; it is just embarrassingly irrelevant now.
We are in a deep recession and the political and policy debate needs to recognise this fact.
• Greg Jericho writes on economics for Guardian Australia