This Wednesday the latest GDP figures will be released marking a year since the economy began its sharp fall into a recession. In all likelihood the latest figures will show we are back (or nearly so) to where we were before the pandemic hit. But as nice as that would be, the numbers will only highlight how far the recovery still has to go.
The figures for the March quarter this year should be pretty good. The past two quarters saw the economic production in Australia grow by more than 3% – the first time that has happened over consecutive quarters.
Of course it came off the back of a 7% fall in the June quarter last year, which was more than three times the biggest one quarter drop ever experienced.
But if the economy in the first three months of this year grew by 1.1% we will be back to where we were at the end of 2019.
If that happens it will suggest a couple things.
Firstly, because it will still be a historically large jump (the sixth biggest jump of the past decade), it will mean we are still very much dealing with the impacts of Covid.
As the most recent job numbers out earlier this week showed, most of the private sector is still employing fewer people than it was prior to the pandemic. But despite this we are still seeing bizarre jumps in retail sales, and unusually large falls in unemployment and underemployment.
Usually economies don’t bounce up and down – think more container ship than speedboat. And like a container ship crashing into the Suez canal, things stop quickly and then when finally freed, everything goes as fast as possible to make up for lost time until eventually things settle back into a rhythm.
There is no rhythm in the economy at the moment; but lots of uncertainty mixed with hope.
Secondly, should the March figures show GDP is back to the size it was before the pandemic hit, that will not mean, despite what will likely be trumpeted should it happen, that we have recovered.
Historically, yes, it would be a quick return to pre-recession levels. The 1990s recession took seven quarters and the 1980s recession took a full two years to rebound, but that doesn’t tell us about the size of the hole.
But we must remember that getting back to level is not a recovery – because the economy is expected to grow.
If on Wednesday we find Australia’s economy is back to the size it was at the end of 2019, we will still be nearly 3% behind where we would have expected to be given growth over the past decade.
And it would mean we would have lost nearly 6% of expected production and consumption over the past year.
That is a massive hole that will likely never be filled.
It’s why focusing on one quarter misses so much because it ignores what has happened in the past.
If you own a business, having a good three months now doesn’t mean the debt you incurred a year ago is gone; nor do the staff you let go get back all the pay they lost because now they have a job again.
It’s why last year the quasi job guarantee, jobkeeper, was so important.
Recessions are tough to get out of because people’s incomes drop, and recovering from that is not just a case of getting a job back, it means also accounting for the lost income incurred while you were out of a job.
Jobkeeper kept households spending and business turnover continuing during lockdowns.
However, as we are seeing right now in Victoria, the lockdowns are still happening. But jobkeeper is not.
That will likely make this week the costliest lockdown of the past year – lots of lost shifts with no income.
That of course won’t affect the GDP figures out this week but points to the reality that not only is there still a big hole of lost income and production from the past to fill, the future remains precarious.
And it is also why when the GDP figures come out on Wednesday it will be far too soon to raise the mission accomplished banners.