Treasurer Curtis Pitt has made a speech in Parliament today claiming that through the last two quarters of 2014 Queensland was in a “recession we didn’t have to have”. Putting aside the obvious political point scoring going on, is there any sense in which we can claim that Queensland has been in recession?
A recession is taken to mean a period with two or more consecutive quarters of negative economic growth. Generally when we talk of nations we consider Gross Domestic Product (GDP) as the measure of “growth”. However, when it comes to the States we need to be careful. State Final Demand (SFD) is provided by the ABS on a quarterly basis but SFD does not include any measure of the net export position of the State. For a place such as Queensland, which exports large quantities of natural resources, ignoring the impact of net exports will significantly distort the picture.
It is certainly true that for the last two quarters of 2014 SFD in Queensland fell by 1.7% and 1.0%. The annual rate of decline in SFD was 3.4% in 2014. However, this ignores the hugely positive impact of exports on the Queensland economy which is only included in the annual Gross State Product (GSP) data. When we add those numbers in we see GSP in 2013-14 rose by 2.3% and was forecast (in the previous State Budget) to be +3% in 2014-15 and then 6% in 2015-16.
Pitt is quoted as saying “Under the former Newman Government Queensland’s Gross State Product declined by 0.2 per cent in the September quarter 2014 followed up by a decline of 0.6 per cent in the December quarter 2014”. In making that statement he appears to be using data from the Queensland Treasury, which provides quarterly GSP data (you can access it here). This does indeed show Queensland GSP having fallen 0.2% in Q3 and 0.6% in Q4.
LNP Deputy Opposition Leader John-Paul Langbroek hit back claiming that “what he’s obviously done is he’s taken the gross state product and he’s taken away net exports from it to come up with some clever concocted figures”. Unfortunately for Langbroek the GSP data that Pitt has quoted does include net exports.
What the data is telling us is that, despite household consumption holding up, the sharp falls in both private and public sector investment have been too much to be offset by the growth in net exports. 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.
It may be using the term “recession” in a format that is generally not recognised, but Pitt’s claim is broadly accurate.
UPDATE: CCIQ have joined the discussion by claiming that the Treasurer shouldn’t be “talking down” the economy. They claim that using the Queensland Treasury figures are misleading and that we should instead wait for the official ABS annual data for 2014-15. CCIQ claim that this will be issued in June this year, in fact the data release will not be until November. We would agree that the ABS annual data should be seen as the “definitive” number but, as State Treasurer, it doesn’t seem totally inappropriate for Pitt to use Treasury data for the quarterly breakdowns!
FURTHER UPDATE: Our friend Gene Tunny from Adept Economics was on the ABC News last night making pretty much the same points (although with far more gravitas) that we make above. He explains further on his Queensland Economy Watch blog. Despite the howls of protest from the LNP and CCIQ there really can be no doubt that Queensland was in recession in the second half of 2014. The question now becomes, “where to from here?”