Is Australia's economy really a world-beater?

The claim that Australia has  gone twenty-six years without a recession is true, but only if you accept three assumptions. Unfortunately, none of them has any official or intellectual basis. Tim Colebatch explains in Inside Story that that economics has no accepted definition of a recession. In public debate, the gap has been filled by the silly measure journalists love to use: a recession occurs when seasonally adjusted GDP goes backwards for two quarters.

Just to take three examples from Australia’s modern history:

1974: On the two-consecutive-quarters rule, Australia didn’t have a recession in 1974, even though everyone could see it happening around them. Seasonally adjusted GDP grew by 0.01 per cent in the March quarter, fell by 2.1 per cent in June, clawed back 1.3 per cent in September, and then rose by 0.03 per cent in December. Sure, by the end of 1974 our output had fallen 0.8 per cent from a year earlier, shops and factories had shut down in their hundreds, and unemployment had almost doubled, but we didn’t have two consecutive quarterly falls. So there was no recession!

1990–91: Remember that? Well, on the two-consecutive-quarters measure, we barely had a recession at all. Seasonally adjusted GDP fell in December 1989, rose in March 1990, just edged up in June, fell in September, rose again in December, fell again in March 1991 – and then it just edged down in June 1991, to give us a second quarter of negative growth. But that fall in June 1991 was tiny – 0.1 per cent – and at one point the Bureau revised it away entirely.

If it hadn’t subsequently revised it back in, there wouldn’t have been a recession at all on this definition. Yet we lost 417,400 full-time jobs, unemployment rose by 453,700 and reached 11 per cent at its peak, and real net disposable income per head fell by 6.7 per cent. That was clearly a recession. Yet on the two-consecutive-quarters measure, it was only a borderline one.

2000: The downturn when the GST came in was really just a speed bump compared to what happened a decade earlier, but on this measure it was a fingertip away from being a full-blown recession. Seasonally adjusted GDP rose just 0.04 per cent in September 2000, then fell 0.24 per cent in December. That September growth could well be revised away some day, which on this definition would make it a recession. That would spoil our record twenty-six years without one, wouldn’t it?