Just in time for winter, a big bank of storm clouds has rolled in to threaten the Australian economy’s record run of 28 years without a recession.
The first bank of clouds is already overhead with the chill shown in this week’s remarkably poor figures in the national accounts.
And another particularly black set of storm clouds also look set to arrive from offshore in the future.
On the growth front the accounts showed the weakest set of numbers since the GFC, with the economy up just 1.8% in the year to March.
Per capita recession persists
Even that number flatters what is really happening behind the surface.
In per capita terms, growth is again negative for a third quarter which shows that it is only immigration that is making the overall result look presentable.
Government spending is contributing a disproportionate amount of the growth that we have – with services in disability, health and aged care all helping to push the government consumption number up to 0.2 percentage points.
That continues the trend from the second half of last year.
International trade also added 0.2 percentage points and non-dwelling construction added 0.1 percentage points.
Higher savings not all positive
Even one of the glimmers of hope within the accounts – an increase in the amount that Australians saved – is actually bad news because it suggests the extra money that is coming into households through income tax cuts and lower home loan interest rates is likely to be used to increase savings or reduce debts rather than being spent in household could help to stimulate the economy.
The household savings rate rose to 2.8%, continuing a rebound from the decade-lows in the September quarter last year.
Risk of recession rising
That leaves a very heavy burden on the other area of stimulus – planned State and Federal Government infrastructure projects such as roads, railways and car parks near railway stations.
The bleak numbers caused AMP economist Shane Oliver to revise up his probability of a recession from 15% to 25% in 2020.
Offshore growth also sliding
As if that wasn’t enough, the international outlook is also rocky, with the continuing trade war between China and the US casting a pall across the world in general, which certainly includes an open trading country such as Australia.
It was interesting that Reserve Bank Governor Dr Philip Lowe pointed to international trade disputes as the main downside risk facing Australia after the RBA Board this week cut official interest rates to a record low of 1.25%.
He is not the only one worried about the direction of world trade and its effect on global economic growth.
The World Bank’s semi-annual forecasts of world economic growth and trade issued this week were quite grim, with forecast global growth this year falling from 2.9% to only 2.6% – again the lowest since the GFC.
Slowing growth is universal
It cut the growth rate for advanced economies from 3% last year to just 2.6%.
Developing country growth forecasts fell from 4.3% in 2018 to 4%.
The picture for the two trade combatants is also poor.
For the US, growth is predicted to fall from 2.9% to 2.5% this year and just 1.7% in 2020.
For China, growth of 6.6% last year is forecast to fall to 6.2% and 6.1% in 2020.
Since those numbers were produced, the trade outlook has even worsened, with the US threatening Mexico with 25% tariffs if it doesn’t reduce the flow of illegal immigrants to the US.
Winter is certainly here and the only question is how deep the snow will get before there is a thaw in the world and Australian economies.