By Leon Gettler >>
IFM Investors chief economist Alex Joiner has no idea how long the forthcoming recession will last.
Bloomberg Economics, S&P Global and ANZ have tipped that the coronavirus pandemic will push Australia into recession.
Joiner says economists are now working through how long it will last.
“We don’t know because what we’re seeing is the unfolding of the coronavirus in advanced economies,” Mr Joiner told Talking Business.
“We’ve seen China trying to limit the spread of the disease. Probably their numbers are a little generous in terms (of them) putting some numbers out to suggest they have it under control, I’m not sure that’s the case, but what we’re looking at is places like Italy and South Korea and these sorts of places where the number of people infected is continuing to rise.
"What we’re seeing in those economies is the government increasingly putting restrictions on the way people can behave and therefore they are not taking part in the activity with the economy.
“So we haven’t seen the peaks in the numbers of infections in advance economies so no-one is game to call an end to the spread of the disease so obviously economies are going to be in this downturn while the spread of the disease keep going.”
AUSTRALIAN ECONOMY WEAK
He said Australia’s latest growth figures showed the economy was weak.
He said the national accounts showed growth at 2.2 percent, but scratching beneath those figures showed the economy was struggling.
“What notable to me and other economists is how weak the private sector is,” Mr Joiner said.
“We’re seeing no growth from the private sector at all. Business investment is particularly weak.”
He said one of the key contributors to growth in the last quarter was residential stamp duty as the property market recovered. It added 0.16 percent to the 0.5 percent growth rate recorded for the last quarter.
SMALL BUSINESS IN CRISIS
Another point that was notable were the figures for the income of the small business sector.
That measure has been going backwards for six consecutive quarters which meant the small business sector was in a poor state entering the coronavirus period.
“It was a low quality outcome for the Australian economy,” Mr Joiner said.
He said Treasury and Reserve Bank of Australia had looked at the impact of fewer tourists and students coming to Australia.
“What they haven’t looked at is the changed behaviour of businesses and consumers,” Mr Joiner said.
“Obviously businesses are in phases where they are very cautious and they’re winding back investment and they’re probably looking at their payroll. And then the consumer is obviously very cautious.
“We’ve seen some changed behaviours in supermarkets and the consumer is going to be much less inclined to go out and spend in the shops.
“Then you’ve got the additional burden on the economy of things being shut down and cancelled so there is a behaviour of people being very risk averse and not doing what they otherwise normally would do and that will also impact on the economy.”
WHAT WILL RBA DO NEXT?
With the RBA cutting rates again to 0.25 percent, the market focus is now on what the RBA’s quantitative easing will look like.
He said additional measures from the RBA included ensuring the free flow of credit to businesses.
“We don’t want to see a situation where the Reserve Bank has low interest rates but the banks won’t be lending any money,” Mr Joiner said.
“The Reserve Bank needs to ensure there is a free flow of credit into the economy if we want to see businesses continue to behave in a way we would like them to through this challenging time,” he said.
Hear the complete interview and catch up with other topical business news on Leon Gettler’s Talking Business podcast, released every Friday at www.acast.com/talkingbusiness.