The trend is Swanny’s friend

From Wayne Swan’s op-ed in today’s AFR:

Australia’s economy is the envy of the world. Right now, our unemployment rate of 5.2 per cent is below every major advanced economy in the world bar one.

…The IMF has forecast Australia will outperform every major advanced economy this year and next. The budget tonight will forecast growth around trend over the next two years, with real gross domestic product growing by 3.25 per cent in 2012-13 and 3 per cent in 2013-14.

…Despite this increase, there’s no doubt that conditions are still challenging for many businesses, particularly due to the high dollar, cautious consumers and ongoing global uncertainty. These challenges are reflected across our patchwork economy, with many businesses under pressure.

With growth returning to trend, it’s entirely appropriate that we return to surplus – an approach that I’ve seen has been rightly endorsed in the Financial Review’s editorial pages. And we’ll do this despite lower revenues – down by $150 billion since 2008 – which means we’ll achieve this surplus by spending restraint.

Just as the government stepped in to support the economy and keep the doors of business open during the financial crisis, the government is now stepping back, ensuring that we don’t generate price pressures in the economy. I appreciate there’s a debate in the economic community about these matters, but it’s worth recalling a few perhaps obvious, though important, points.

As growth returns to trend, unemployment is low, and there is a huge investment pipeline coming through, disciplined fiscal policy gives monetary scope to ease interest rates if needed.

Here is the “trend” in annual GDP since 1992:

Now, I’ve just drawn those nice red lines by eye. They look about right, don’t they? About “trend”? I haven’t done the precise calcs because there really isn’t much need. Even using a crayon I can see the Australian economy has broken its pre GFC trend growth of somewhere between 3.5% and 4%. We’ve been tracking for about four years now at 2%, perhaps a bit more.

On a longer term chart you do get a result somewhere around 3%+ but one wonders about the wisdom of relying on a “trend” that a box of crayons can tell you is questionable.

Houses and Holes


  1. “but one wonders about the wisdom of relying on a “trend” that a box of crayons can tell you is questionable”

    Well HnH maybe thats what the economists and media need to start doing as there methods are crap and all hype. Your method makes a lot more sense.

  2. I see two trend lines as follows: gradual decline in GDP from 1995 to 2007/08, then a sharp decline in GDP from 2007/08 to present. You could probably eliminate the 2007/08 outlier and have a single trend line showing GDP decline from 1995 to now.

  3. Pfh007MEMBER

    A surplus is neither good nor bad.

    It is what constitutes the govt expenditure that makes the difference.

    1.  Cutting expenditure on automatic stabiliser type payments = bad

    2.   Cutting expenditure on inefficient government pork programs = good

    3.   Cutting expenditure on worthwhile infrastructure and other investment of lasting benefit that the private cant do or temporary is lacking the ‘confidence’ / animal spirits to do = mostly bad but sometimes a lack of confidence might be for good reason – the project is a dud

    If govt runs a surplus because it cant think of worthwhile expenditure in addition to automatic stabiliser payments so be it.

    Having said that anyone who trusts Swan and his funny maths and thinks a Swan surplus is actually a surplus may be too trusting.

    • Pfh007MEMBER

      Usually the problem is that the worthwhile projects are in abundance but they dont get a look in when pork is on offer. Thus if pork is getting cut and that produces a surplus – great.

      If you believe a deficit is a good idea because there are surplus human resources available in the economy then you must identify the resources and what specific projects by the government can use them efficiently.

      For example: how does a specific program employ those currently unemployed or under employed. If you cant answer that there is a real risk that a government program will just divert resources that are already employed

      • Alex Heyworth

        Trouble is, most of the pork these days is closely attached to the snouts in the trough.

    • +1.

      Every time he repeats his mantra, expletives rush to the lips, and all objects near-to-hand morph into the appearance of projectiles.

      To keep referring to the Oz economy as “the envy of the world” is a reality not unlike that of 1st class pax on the Titanic enjoying the envy of the 3rd class pax on the lower decks.

    • If everything doesn’t go belly up he can thank the Chinese. But both he and the PM have been lecturing the world, and that is really embarrassing.

      • A63 “But both he and the PM have been lecturing the world, and that is really embarrassing”

        Its going to be even more embarrassing when it back fires on them. They are to busy praising them selves and probably know that “Houston we have a problem”

        • LBS they’ll have plenty of others to blame. These people never take responsibility.

    • JunkyardMEMBER

      Yep, that grinds my gears too.

      The only thing they envy is all our red and black dirt.

  4. Jumping jack flash

    “The budget tonight will forecast growth around trend over the next two years, with real gross domestic product growing by 3.25 per cent in 2012-13 and 3 per cent in 2013-14.”

    Well, that’s his first mistake.

    I hope he’s factored in the effect on the “trend” of debt bubble demand over the past decade, and the recent lack thereof.

  5. Can’t really blame Swanny for the rehthoric. It’s the buffoonocrats who sit behind him at the Treasury that irritate me no end.

    • Regardless of what the “buffoonocrats” tell him, saying “Australia’s economy is the envy of the world” more than once in a lifetime is just asking to get your face smashed in. Metaphorically speaking of course.

  6. I don’t know what’s worrying me more, the long term economic outlook in this country – or the fact that government here is so incredibly damn incompetent that I see no hope of it ever improving.

    What a joke.

  7. Devil’s advocate counter-argument: They’re over two different time periods, you cannot compare the two trends

  8. More realistically it looks like trend growth is decreasing by ~1% every ten years

    ~4% in the 90s
    ~3% in the 2000s
    ~2% in the current period

    That’s not even a crayon, that’s just running my eye over it.