Alan Oster, the chief economist at the NAB, talks about the weak GDP growth in the March quarter
Introduction – Australia grabs record for longest time without a recession
Ross Greenwood: Let’s now go to those economic growth figures. Here today is what the Treasurer, Scott Morrison, had to say. Of course, Scott Morrison, the Treasurer, will be on the program just after seven o’clock this evening.
Scott Morrison: A generation of Australians have grown up without ever having known a recession. I think that’s a tremendous national achievement. But it’s not one that can be taken for granted. It’s one that’s been achieved by every Australian going to work every day, every Australian that started a business, every Australian that’s made an investment, every Australian that’s made a contribution.
Ross Greenwood: It’s true but also the treasurer said it’s also about what happens in the future as well. Right now, however, it would appear as though Australia’s economic growth is sluggish. The economy in many ways is stuttering. It’s got all sorts of different influences over it right now. Economic growth, 1.7% annually is the slowest since the global financial crisis. Let’s bring in here the Chief Economist of the National Australia Bank, Alan Oster. Many thanks for your time, Alan.
Interview with Alan Oster Chief Economist nab
Alan Oster: Thanks, Ross.
Ross Greenwood: Is my description reasonable? Is Australia’s economy spluttering at the moment?
Alan Oster: I think that’s fair to say. We thought of describing that system. One of the factors like whether there’s things associated with the fact that consumers don’t feel that confident. The dwelling sector’s a bit of a surprise to most people because we can see all the apartments being constructed but houses are not being constructed. You get a pretty sluggish growth numbers in that.
It might sound funny but the markets were actually pretty relieved when we had a 0.3 in the quarter because some of us, including me, thought there was a chance you might actually get a negative number.
Ross Greenwood: Take me to other bits and pieces. The treasurer. Certainly the Reserve Bank and Treasury even say– For example, the OECD all believe that Australia during 2017 is going to have stronger economic growth as we go through the year. Is that a reasonable presumption?
Alan Oster: I think it is if you’re talking about the second part of the year. In other words, the September and December quarter. I don’t think it’s true in the June quarter. In the June quarter, we still got sluggish consumer. We’ve got another one off sort of thing. Something called Cyclone Debbie. A low is was quite disruptive. But what it really hurt was the Queensland coal mines. They stopped exporting. I suspect if I could get a 0.3 in the June quarter, I’d bank it.
But after that, to get a number of very large things like the Wheatstone LNG, platform starts to export. We had a very flat patch. Then we have some pretty strong growth numbers around 1% in each of the third and fourth quarter. We get to about two and a half. Not three, it’s two and a half.
Ross Greenwood: Does it trouble you at all that part of what came out today was a number in regards to the household savings ratio. I do note that even the chief economist of the Australian Bureau of Statistics, Bruce Hockman picked this up. When he indicated that the household saving ratio has fallen to 4.7% in that March quarter, which is half the rate, he says, that it was in the March quarter four years ago in 2013. That’ll worried that maybe households now starting to bite into their savings to keep their standard of living going.
Alan Oster: I think it is a worry. You can’t keep running your savings down forever. A lot of us was sort of concerned that consumption would actually be pulling back. It’s still not great. 0.5 and two and a bit percent growth over the year is not a lot. What you’re saying is you’re seeing very little growth in essentially retail sales. But in services like utilities, et cetera, there are things that you people think they have to buy. They’re pretty strong. There’s a discretionary versus non-discretion story. But it does underline the fact that the consumer can’t keep running down their services saving forever.
Ross Greenwood: Given the fact that Australia has seen now 26 years without a recession, I noticed that the Treasurer said today he would hope that we could go another 26 years without a recession. What do you think the chances of that are if you’re a betting man?
Alan Oster: If you’re a betting man, you’d probably try and bet against it. I always tell my kids, et cetera, I’m in economics so they have a job. If you can possibly avoid a recession, for God’s sake avoid it because once you get in, it’s really hard to get out. They take a long time. You always find unemployment goes north and doesn’t really come down for a long time. I hope he’s right but I think the odds are pretty much stacked against pink in a medium-term context.
Ross Greenwood: Yes. When we hear young people these days worrying about the stress of not being able to afford their first home, it’s even worse in a recession when there is no job. You can certainly buy plenty of homes in less and cheap, but there is no job and there is no confidence to go out and buy one in the first place. When there’s no job, that is genuinely real stress and financial stress on families. Alan Oster, Chief Economist of the National Australia Bank. As always, Alan we appreciate your time.
Alan Oster: Thanks, Ross.