Australia’s economic growth has fallen to the lowest level since the global financial crisis but Prime Minister Scott Morrison says he “can’t see” the country falling into recession.
Australian Bureau of Statistics figures released on Wednesday confirmed gross domestic product grew by 0.5 per cent in the June quarter, dragging year-on-year growth to 1.4 per cent.
The result was slightly better than some predictions of as low as 0.2 per cent, or 1.1 per cent year-on-year. Treasurer Josh Frydenberg said the result was “a repudiation to all those who sought to talk it down”.
Addressing a media conference in Canberra, Mr Frydenberg was hit with a particularly brutal question. “Are you saying you’re happy with the worst economic growth in a decade because you thought it might have been worse?” a journalist asked.
Mr Frydenberg responded that it was “a challenging environment”. “People were speculating in the media about a negative growth number in the quarter,” he said.
The Treasurer stressed that “significantly, these numbers do not incorporate the passage through parliament of the most significant tax cuts in more than 20 years and the full impact of the RBA’s decision to reduce interest rates by 50 basis points”.
“As of today, the ATO has issued more than 5.5 million refunds totalling more than $14 billion. This money is flowing through to households and will be reflected in the September quarter,” he said.
Mr Frydenberg said the combination of tax and interest rate cuts, the stabilisation of the housing market, continued spending on infrastructure and a more positive outlook for investment in the resources sector had “led the RBA governor to say there are signs the economy may have reached a ‘gentle turning point’”.
The GDP figure “shows the Australian economy continues to grow in the face of significant headwinds”. “It’s a difficult time for global economies, with Singapore, Sweden, Germany and the UK all having negative economic growth in their June quarters,” he said.
“The IMF and the OECD have both downgraded their global economic growth forecasts. In the face of these challenges and the uncertainty created by increasing trade tensions between China and the US, the Australian economy has again proven its remarkable resilience.”
Mr Frydenberg added that “the only people who are disappointed with today’s national accounts” were Labor leader Anthony Albanese and Shadow Treasurer Jim Chalmers “because their efforts to talk down the Australian economy have not succeeded”.
“New national accounts data shows slowest annual economic growth in a decade on the Liberals’ watch and yet still no plan to turn things around,” Mr Chalmers earlier wrote on Twitter.
It came after Mr Morrison defended his government’s economic management, telling 3AW’s Neil Mitchell conditions had “softened” but that Australia was doing better than many other developed countries.
Asked if Australia was facing a recession, Mr Morrison said he “can’t see us going into that territory”. “Let’s remember, Germany just had a negative quarter of growth, the UK just had a negative quarter of growth. Australia hasn’t,” he said.
“Today’s growth figures will show over the year a softness … what we will see is that in a tough climate we are actually battling away quite well. I’m not surprised by the difficulties we’re seeing globally at the moment. When we put the budget together in May I said we should cut taxes, we should spend more on infrastructure, I said we should invest more in skills transitioning.”
The Morrison government is banking on tax refunds and low interest rates to bolster the economy. The current account surplus revealed on Tuesday — the first in 44 years on the back of strong export volumes of coal, iron ore and liquid natural gas — is set to contribute about 0.6 per cent to GDP growth.
“I was pretty pleased with the current account numbers that came out yesterday,” Mr Morrison said on 3AW.
“That’s the first current account surplus that we’ve had since 1975, I mean Skyhooks were leading the charts back then. Our export performance today has been quite extraordinary. That’s been building up over many years. The work we’ve done to build our export markets over the last five years is really paying dividends now and we’re going to keep expanding those, both with the European Union and the UK.”
HSBC, however, sees the current account surplus as “more of a negative than a positive development”. “The current account surplus implies net foreign capital outflow rather than inflow and a lack of investment relative to local saving,” the bank said in a research note.
“Australia’s current account deficits, which it has had for almost all of its history, reflect that the country has good growth prospects, but insufficient local saving — partly due to a small population — to fund all of the investment that should be done.”
A current account surplus “thereby could imply that growth prospects do not appear as strong or that there is less investment happening than would be ideal”, HSBC said.
Meanwhile, Mr Morrison rejected suggestions the tax cuts had failed to stimulate the economy. “That’s a ridiculous comment,” he told 3AW. “The figures that are coming out today are for the June quarter. The tax cuts were passed in the September quarter. Of course I am (confident they’ll work).”
The weak growth figure — on top of Tuesday’s weak retail trade results — will be seized on by Labor as a sign of a government which has no plan for the economy.
However, Mr Frydenberg believes trade deals, a $100 billion infrastructure plan, funding for training and skills, record low interest rates and income tax cuts will deliver better results in the final part of the year.
The Australian Taxation Office told AAP it had now received over 7.8 million individual 2019 tax return lodgements — a 15 per cent increase on the previous year.
“We have issued over 5.5 million individual 2019 income tax refunds with a total value of over $14.2 billion,” an ATO spokeswoman said.
Retail spending fell by an unexpected 0.1 per cent in July, missing forecasts of a 0.2 per cent rise. The biggest fall was in spending on cafes, restaurants and takeaway services.
The Reserve Bank, which kept the cash rate on hold at 1 per cent on Tuesday, flagged it would ease rates further “if needed to support sustainable growth”.
The outlook for the global economy remained “reasonable”, the RBA said, although the risks were tilted to the downside. “A further gradual lift in wages growth would be a welcome development,” RBA Governor Philip Lowe said in a statement.