The stimulus was always a matter of making sure the data came out OK rather than actually generating a recovery of any worth. The fantastic negative consequences of the GFC as prognosticated by Treasury turned out to be wildly pessimistic so that, in the end, when unemployment rose from just under four percent to just under six percent it looked better than the forecasts that had existed a few months before. But it should not be forgotten that we did have a recession in every imaginable way except the official way, which required two consecutive quarters of falling GDP. Spending the equivalent of four percent of GDP on a stimulus will have that effect on the numbers even if it was spent on useless nonsense, as much if not most of it was.
So today’s National Accounts needs to be looked at in the context of a wearing off of the stimulus as the economy tries to find its way into a proper recovery. The data that matter are the figures on private sector investment which fell during the quarter by -0.2% in trend terms and rose a meagre 0.8% across the year. Over on the public sector side, however, public sector investment has risen this quarter by 0.3% but across the year went up by 24.2%. The appearance of recovery has occurred because of public spending. That few of us outside the public service actually feel the benefit of a supposedly growing level of output is just the way it is.
To complete the picture, government consumption has risen by 4.0% over the year while for the private sector it has gone up by 3.0%. That buying has outrun production is further reflected in the data on exports and imports, with imports having risen by 13.4% over the year in contrast to the far lesser increase in exports of 5.4%.
Recovery is recovery of the private sector. Even if you think that there is a role for useless public spending in the midst of some economic crisis – a view I do not share – ultimately growth must occur through an upturn in private sector activity. Achieving this kind of outcome is what the government must now attend to if we are not to sink into a sea of debt.