Tough Week for Australian Economy: Chickens Coming Home to Roost

Tough Week for Australian Economy: Chickens Coming Home to Roost. By Alan Kohler.

It’s hard to imagine a bigger week for the Australian economy: China’s manufacturing index has fallen off a cliff because of the coronavirus, we have the RBA meeting Tuesday and December quarter national accounts on Wednesday. …

Australia’s major trading partner has come to a standstill so exports to it have too. Wednesday GDP won’t record that, but everyone knows what’s coming when March quarter GDP is published in June – it will be negative. The only question to be answered is whether it will be two quarter negative quarters, and therefore a recession, and it’s hard to see how that can be avoided. …

On Tuesday the Reserve Bank board meets in the midst of a maelstrom that has come out of nowhere and has changed everything.

They must cut interest rates again, probably by 0.5 per cent.

That’s because what the national accounts will show the following day is that Australia came into this viral black swan in a weak, vulnerable condition. The economy is simply not robust, unable to withstand a shock like this, and we’re not talking about something that might happen in the future – it’s happening now.

The fundamental reason for this vulnerability was revealed two weeks ago in the Productivity Commission’s annual “Insights” publication, which stated that both labour and multifactor productivity fell for the first time since the mining boom, by 0.2 per cent and 0.4 per cent respectively.