Interest rate cuts and negligible below-trend inflation don’t speak to an economy that is jumping out of its skin: to the contrary. If a shell-shocked Labor can draw encouragement from a disastrous outcome it is that the bloom may come off the Morrison government sooner rather than later. Former opposition leader Bill Shorten: may have dodged a bullet. Credit:Alex Ellinghausen It is one thing for the marketer-in-chief to have fought a copybook scare campaign against a vulnerable opponent, made more vulnerable by electorally suicidal tax policies; it is quite another to deal with a slowing economy in a global environment that is dangerous, if not mad. John Daley, head of Melbourne’s Grattan Institute, puts the government’s dilemma quite well when he asks the pertinent question: “How far is the economy going to slow?’’

Loading We don’t know how far or fast the economy will slow, but the signs are not encouraging. What is clear is that rather than having the “wind at our backs’’, the Australian economy is facing headwinds. These are threatening to become stronger, not weaker. Downside risks, as World Bank forecasters say, have become “more acute’’. This invites the obvious question: was this an election that will prove a good one to have lost?

While readers contemplate the answer to that question – with the caveat no absence from the Treasury benches is necessarily desirable – these are the headwinds. Loading Replay Replay video Play video Play video On the basis of the December quarter numbers Australia is already in a recession on a per capita basis. It has been there before in its record-setting period of economic expansion, but there is a sense this time that it will be lucky to avoid a contraction. Slowing economic trends are unlikely to have reversed in the first quarter of 2019. We haven’t seen those March quarter numbers yet, but they are unlikely to be good, and may be bad. Political uncertainties will not have helped. What is in prospect is the sort of outcome that will compound the concerning result in the second half of 2018 when GDP slowed dramatically to 1 percent year-on-year.

If that slowdown becomes entrenched, Australia will tip into a recession for the first time in a generation with all the consequences that will follow. This includes an indelible political context. Loading After six years in office, the Coalition cannot reasonably blame its predecessor for tepid wages growth, weak productivity gains, spiralling household debt, a doubling of net government debt, and a depreciation of the Australian dollar by about 30 per cent since a Tony Abbott-led government took office in 2013. Interest rate cuts may further weaken the dollar. This would be good for commodities exporters, bad for consumers. A booming property sector fuelled by easy credit and lax Foreign Investment Review Board strictures on Chinese money flooding the market contributed to an illusion of wellbeing, the so-called wealth effect: or, perhaps, better described as the “wealth illusion’’.

Cuts to interest rates may give the economy a bump. The removal of the spectre of a Labor government, at odds with aspirational Australia, may encourage investment. However, what should be concerning the government, as it prepares for the first session of the 46th parliament in early July, is that unemployment in April ticked up to 5.2 per cent from 5 per cent, and underemployment jumped to 8.5 per cent. Finally, this brings us to Treasurer Josh Frydenberg’s pledge to bring the budget back into surplus in 2020-21 and begin paying down debt. If a recession bites that undertaking will not be worth the budget papers on which it is written. Illustration: Jim Pavlidis Credit: The question will then become whether - and how quickly - the Morrison government can bring itself to admit its budgetary projections, reaffirmed by a docile Treasury in its pre-election economic and fiscal outlook (PEFO), misfired.