Watching the ABC News tonight, I had to laugh when ABC State Political Reporter Chris O’Brien prefaced opinions given by Nick Behrens from CCIQ and me on whether Queensland is in recession with that classic journalistic device “Opinions differ…” Well they certainly do differ, but only one of the opinions was right, and it is undeniable that Queensland recorded a technical recession in the second half of 2014 – i.e. two consecutive quarters of negative economic growth.
The Queensland Treasury figures showing a recession appear very reasonable to me and are what would have been expected given the drop off in capital investment spending by the resources sector and government from the elevated levels they have been at. The decline in private and public investment is the big driver of the drop in gross state product (GSP) in December quarter (see chart below). But the impact of the drop in investment was not as severe as it might have been, because a lot of capital equipment was obviously being imported, as imports fell in December quarter, offsetting part of the reduction in GSP caused by the fall in investment. (Note that as imports subtract from GSP, a fall in imports adds to GSP.)
The positive contribution from consumption expenditure to the change in GSP is encouraging, and confirms my view that Queensland will endure the end of the mining boom without much more of an increase in unemployment (see my speech on the end of the mining boom). As I’m not surprised by today’s State Accounts figures from the Treasury, I have no reason yet to change my assessment.
I’d dismiss any allegations of political considerations influencing the Treasury figures. Treasury has been producing State Accounts figures on a quarterly basis for as long as I can remember, and indeed I recall using their estimates when I was an economics honours student in the mid-1990s. The ABS doesn’t produce quarterly State Accounts figures, so the Treasury has to produce them. In my experience, Queensland Treasury has always acted with integrity in the production of its economic data, and I’d challenge its critics to produce examples of where it hasn’t.
That said, Budget forecasts are another matter, as Budgets are technically the product of the Treasurer, and it is inevitable that the commendable levels of enthusiasm our Treasurers tend to have for our economic future will influence the forecasts to some extent. No doubt Queensland Treasury will be considering the need to revise down the GSP growth forecasts it will use in the upcoming Budget after today’s figures, and I’m sure it will be advising the Treasurer about the necessity to do so. In his excellent post Has Queensland been in recession?, Pete Faulkner notes:
We shall wait to see what the Budget in July now forecasts for GSP growth in 2014-15 but it would seem highly likely, given the falls in Q3 and Q4, that the previous 3% target will be downgraded.
Obviously, this will add to the already huge fiscal challenge the Government is facing.