Finding the positives from our fall in GDP

There is no doubt about it – yesterday’s GDP data confirmed that we are heading towards recession.

While most economists and business commentators have turned their attention to arguing about how deep and prolonged the downturn is, we’ve decided to take a different approach by finding five positive factors out of the GDP data.

We’re saving more than we have in decades. Much has been made of the huge debt burden being carried by Australian households, who borrowed big and bought new homes, cars and plasma televisions in the last five to 10 years. But we appear to be doing something about it. The household saving ratio (household savings measured against net disposable income) rose from 3.4% to an 18 year high of 8.5% in the December quarter.

Consumers and businesses were actually spending in the December quarter. According to Craig James, chief economist at CommSec, private spending grew by 0.2% in the December quarter, proving individuals and businesses are still investing. But government spending surprisingly went backwards by 0.3%, dragging the GDP figure into the red.

Companies have been very sensible in cutting inventories. JP Morgan economist Helen Kevans points out that firms were aggressive in ridding their shelves of unwanted stock amid expectations of economic conditions getting much worse. Indeed inventories were the biggest drag on the economy in the fourth quarter, subtracting 1.6% points from GDP growth. That might not look like great news, but there are positives. “The good news for GDP growth going forward is, of course, that firms will need to rebuild stock as sales improve, although this process will be gradual given expectations of a prolonged period of weak demand, both locally and abroad,” Kevans says.

We’re doing better than everyone else in the world. Yes, our GDP growth slipped to -0.5% in the December quarter. But compare that with Japan (-3.3%), the US (-1.1%), Korea (-5.6%), Thailand (-6.1%), Singapore (-4.2%) and Britain (-1.9%) and you quickly realise we don’t have it all that bad. Of course, that’s cold comfort to anyone who has just lost their job, but it should mean we are better placed to come out of recession much faster than these nations.

The recovery just got closer. While we can’t predict how long this recession will last for, we can at least say we just got a bit closer to the bottom – and that means we also just got closer to the inevitable recovery. The next six to 12 months will be tough, but don’t lose sight of the light at the end of the tunnel.

 

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