Wriggling out of a recession
This is ABC podcast Prime Minister. Welcome to the program. Thank you for your time. Thank sleepy east the combination of rhinovirus and the bushfires going to drive a straight into a recession. Well I'm not getting ahead of these issues What we have done on the Koran Avars Spike is very much on the health challenge. The government doesn't want to answer it. But that's the question everyone's asking I'm Stephen Stockwell and I'm Angela and today on the signal. Australia's desperate efforts to wriggle out of a recession okay. So we're back in that weird spot in the news cycle where everyone is talking about a recession but no one is outright predicting one right and have we find ourselves here. We call in the. Abc's business editor Brenda before. Corona virus was a word that everybody knew only too well. These trillion economy wasn't in perfect shape by any stretch of the imagination. Can YOU DESCRIBE FRISK? How things would traveling prior to this horror Osama. Look you've just got the numbers out for the of last year. So the what's known? As the December quarter three months up to the end of the the December quarter. We saw zero point five percent growth Australia in the quarter. That we're talking about today has performed well. Compared to other countries look a lot better than a lot of people expected. Mom some were expecting absolutely no growth whatsoever and even maybe a contraction but the problem. We've had in the economy really quite some time. Now that I'm domestic Wa- retail spending has been bad household. Spending has been bad. All the growth has come from exports much better than expected on all processes and Government spending so the household sector's been pretty pretty poll and the reason for that is. You've got too much household level. Everybody's off to the odds with massive mortgages and why does not been growing so spending it? And if you're doing. I kind of helped check on the economy. So broad terms state would have been in at that point ended last year. We were okay but Karnal limping along and and not in the foot. Not Getting any better. Everyone was pointing to a slowdown this year. And look for some time now. The Reserve Bank is pointing out. You know we're we're not in great shape and if there's something that just comes out of the blue we could end up in serious trouble and cut to December January where we have not only unprecedented bush fires and the economic hit the came with that but then what is on the verge of becoming a pandemic in the form of Corona virus. Is that exactly the worst nightmare that the was imagining. I think so. Yeah I mean the Bush has bad enough because you think back. We've had Bush flaws proud of this but they've never baynes on such a massive scale across the country and you know the destroyed so much infrastructure regional housing You had the drought as well compounding the problems with the economy which was really going to affect export earnings from from the rural sector. So that was really bad. Everyone's thinking wow. This is going to really possibly even tapes into recession and then in the background. You've got this thing happening in China this. We'd virus that pops up out of the middle of nowhere. Chinese health authorities are still working to identify the virus behind a new mooney outbreak. In the central city of one according to authorities the number of cases has increased to forty four with eleven of them in serious condition and got a lot of particularly the financial markets. Just didn't bother with it at all as Blewett rod off as some kind of about an event and who really cares until about a week ago corona virus fears send global share markets into meltdown today with billions of dollars wiped from the ASX at the close of trade today more than two hundred and thirty two billion dollars value been wiped away. That's around ten percent. It's been the biggest drop in a single wake for the Australian market since the Paik of the financial crisis. Look at that right there. Wall Street ending one of the worst weeks of trading since the financial crisis in two thousand eight what has grown virus done to the global economy so far paints a broad picture. Look it's created what's known as a supply shock and is to conduct sharks that you can have in economic terms. One is demand a demand shock the other supply and demand shocks at pretty easy to well not easy but the relatively easy to fix them than the other. Because what you do is you throw money at it. So you know if you and I don't have enough money to spend because the economy's slowing down over this too much. Whatever the Reserve Bank account interest rates the government can give you cash and then you gown spanned an. It'll kind of works out but supply shock. Is something similar to what happened You know back in the seventies with the oil shocks when oil supplies cut off in this case it was China which is so important to producing components for pretty much everything you buy from mobile phones to building materials. They've got some kind of input into that and so when they shut down all of the stuff that you would normally go on by is suddenly missing from the shelves. So you know at paypal can give you more money. But that doesn't mean you're going to spend it because there's nothing to buy. The world's factory is having a sick day. Basically yeah absolutely and is a net seek Diana. It's quite a great parallel between the economic health. From this virus because as the virus spread around China the economic virus spread around the rest of the will to Europe to the states to hear you. Thank that the whole world has been affected because the whole world is exposed to China economically. These that especially true for Australia though. Oh yeah absolutely. We are. Probably the country most connected to China. Most of our exports go to China in terms of raw materials. You talking on or call gas all sorts of things and then you'd look you can also consider. The tourism is an expert because it creates cash for us the education sector. You know these are really important components of our economy and we are in terms of economic development On that scale where one of the least developed countries in the world because we were so connected to one country only with so dependent on one country. You know you're looking at sort of small African nations which normally just one. Niger trading partner. Well let's waste of sitting in the equation. Sorry that old saying among economists that if China sneezes catches a cold is extremely relevant right now if in slightly poor taste shit so young. It's a little little real and like humor saying we don't have the official figures for the period since the FIS and virus really kicked in the downtown is visible and if you pretty big sectors yea literally visible empty university halls empty shelves empty hotels and the projections are starting to reflect that. Lou Treasury did some early Calculations came up with the basically saying that the bush fires and the early bit of the correct corona virus would take about north point two percent off our GDP growth the OECD. Came out the other day though and said up to about north point five percent. So you know you combine that inside you take no point of. We've just not wrecked up a note point five percent. Gyn So you're in two zero territory just based on the the modeling that we already have from Treasury and from the always day doesn't look like we're headed for a recession here. You'd probably say yes. Look that's why the FBI cut writes this week. The being adamant for quite some time that The there wouldn't be doing any anything. Radical and the economy was improving that had always rosy full costs about wages growth about all sorts of things. But I think there's been a deep seated fear that something like this would blow up and They've they've acted very quickly. You also saying that the US has cut writes. They've done a two in one. Go and that is really taken. Everybody surprise because they didn't even wait for the next meeting. I just came straight out of the Blue Australia. First off the mark here and look. We're going to Canada and probably New Zealand. Follow and Europe are already negative territory. So there's not much room for them to do much. Odds are we heading for a recession and the government has started hinting at economic stimulus measures to avoid it the very least softened the blow when we be announcing the details of that package. Where will it be targeted. We'll be answering no soon lay and we'll be enhancing the tag on at that time and he's saying before the. May Federal Budget because one assumes there's a degree of agency here yes it is okay so what everybody's it's happening soon but so far we don't know what shape it's really gonNA take right although it's a pretty safe bet that it's not going to look anything like the stimulus measures from the rudd government in two thousand and eight when the majority of. Australians had a big chunk of money land in their accounts so back then it was pretty clear that this was going to be a global shock and that people could possibly run out of money and what we needed was to boost demand. So let's hand money out to everybody. Who's on the you know? Got a registered at the I. T. O. And give everybody a thousand bucks. Cowan spend some of it that should keep the economy taking either. They've pretty much ruled out. Broad scale a lodge scalp a splashing cash around. They've said that that didn't work last and actually did work was one of the most successful things. So that's the new term helicopter money this time. It's it's different. It's a supply shock and so this is way of firms not going to be able to get enough things to put on their shelves to manufacture what they need to manufacture and so they're going to run into trouble with servicing ditz. You say what could happen here. Is If there's nothing to buy and if firms go to the wall thou not laying off workers and if work is start getting the sack and Co pay the bills mortgages and everything else that flows through. That's when you start to get a a really deep seated recession and so you need to start from the point of view of okay. What do we have to do to ensure the people get the sack rock? Perhaps it is. We offer some kind of loan facility to two companies that have just been affected by this farce ordinarily would be reasonably well off and be able to do okay and to give them some kind of debt holiday until this. Old Liza. I'm guessing about the deadline facility. That's something that ought. Explorer was in their shoes. But that's one way of doing it but yeah. I think they're going to go down. An Industry Pecan path and now we'll look at specific sectors. Not will be the hand out money to hotel operators or tourism companies or whatever. They're going to be very targeted. They still seem to think that the surplus is something that needs to be defended against all odds okay. So that's the plan. Well maybe that's the plan. No one actually knows what the plan is yet. And there's no guarantee it would work to keep straight out of a recession anyway so if we are headed into a recession. What exactly does that mean for people? How's IT GONNA affect their day to day lives? Well it's a unemployment really and our unemployment rate is has been climbing a little And it's well above what the Reserve Bank would like to see. The Reserve Bank wants rant four and a half percent. We've now got it at five and a half percent. So it's a long way off target but even worse is the underemployment employment. So you've got underemployment roundabout eight percents and this is where people they're working but they're not working enough. They not waking enough to pay the bills or to get where they want to be other sectors. And I guess demographics that are especially vulnerable here. Look you know. We've seen massive changes in the economy. Over the past thirty years where You know factory and manufacturing has declined as as as an important part of the economy is still important. But it's not as important as it was you had will pay jobs in that sector that have been lost to automation and the the growth in employment has been in the service industries. So you've got a lot of people now working in in tourism and hospitality and all these kind of the done. The jobs don't pay particularly will so they just getting by on a lot of them casual workers so the casualization of the workforce as also been a real problem and I are going to be the first recession because they casual workers? They're easy to lay off? That's young people. Young people pre predominantly young people. Yeah how long until we start seeing those impacts I think in the tourism industry pretty pretty quickly. You know The hotel industry is is really hurting at the moment. And there's a strong possibility that we could see some hotel. Chains are the pull out all smaller ones go onto. Is there anything at all that people can do to insulate themselves here? I don't know what could you do if you if you don't have any money in the bank and there was some studies done last year which suggested that Most households only had would struggle to get three thousand dollars if they needed in an emergency funding for something and said that gives you an idea. Just how slim the margins everyone are operating on you know I mean. No one's got money in the bank because they've got these huge mortgages and if they haven't got a huge mortgages paying big rents you know with very little in common no wage growth. We were very lucky in two thousand eighteen and it was because of our ties to China. That's why we're insulated. It feels like as lucky as we were that time. That's exactly how unlucky we are these time around because we were so closely tied. They pulled us out they. They saved global capitalism Communist nations club captains from itself. But it's a toss China is probably going to wipe down this time rather than let us sell through. 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