(Image: Tom Red/Private Media)

Wayne Swan once won World’s Best Treasurer. Apparently Scott Morrison seems to want to swipe it for his buddy Josh Frydenberg, having been out and about claiming the economic hit his government overcame was 30 times worse than that endured by Australia during the 2008-09 global financial crisis (GFC).

“You know, this global pandemic was 30 times worse economically than the global financial crisis of just over a decade ago. Thirty times worse. But our employment outcomes have been 50% better,” Morrison said recently.

We famously dodged a recession in the GFC, and we did not dodge one in the pandemic. Nobody doubts the pandemic was the more acute crisis. 

But is Morrison’s claim true? Or is it another ScoMo special, a case of being loose with the facts?

So how can you manufacture the claim the economic hit from COVID was 30 times worse than the global financial crisis?

How about jobs?

Not by looking at unemployment. As the next graph shows, in the GFC unemployment rose from 4% to almost 6%. In the pandemic, unemployment rose from 5% to 7.5%. That’s slightly worse, no doubt. But is it 10 times worse? Nope.

How about growth? 

The most generous comparison we can make is to compare Australia’s single worst quarter of the pandemic (April, May, June 2020) to the worst quarter of the GFC (October, November, December 2008). We can see a big difference, as the next chart shows. But it is not a 30-fold difference. More like a 14-fold difference, and only for the single worst moment. As the red line in the below chart shows, the recovery was quick.

Of course, if you do this analysis by year, not quarter, the size difference is smaller still. The pandemic had an extremely acute effect at the start of 2020 while the country was locked down and the world had no idea how bad things would get. We soon learnt ways of coping, including relying on online shopping to prop up consumption. GDP growth recovered. The GFC caused more lingering effects. 

Aha!

Here’s what the PM was actually talking about: if you look at the IMF’s measure of world growth, it fell by 0.1% in 2009 and 3.1% in 2020. That is a 30 fold difference in those narrow terms. For advanced economies or emerging economies the comparison works out differently. The Prime Minister’s Office confirmed he was referring to the IMF data.

So is Morrison truthing for once? Well… if you check the World Bank’s data instead of the IMF’s you see a much worse story for 2009. They have growth falling by 1.4%, which means 2020 shows up as only twice as bad, not 30 times as bad. 

It seems the PM is being selective. He’s not lying. But he has certainly found some facts that suit his narrative best.

The big picture

For us, looking at the above graph shows the whole picture, not just the part the PM might like us to look at. What we see is advanced economies have popped back to life in 2021 and 2022 — of course, we’re an advanced economy. This reveals the most important point. Which is that Morrison’s claim falls down not on the statistics but on the nature of the recession.

We don’t talk about this enough but financial crises are different to other kinds of recessions. They are far more damaging. This fact was brought to the forefront of economic thinking after the GFC, and explains why growth and wages growth in advanced countries have been so weak in the period between the GFC and pandemic.

“Financial crisis recessions are costlier, and more credit-intensive expansions tend to be followed by deeper recessions,” wrote University of California economics professor Òscar Jordà in an influential 2013 paper.

We bounced back from this recession quicker in part because of the enormous stimulus unleashed, but also because the recession was simpler: the virus made us hide inside. When vaccines came, the need to hide became much smaller. There were not big tears and twists in the underlying fabric of the economy that needed repair. Trust in the economy was not broken. The problem was biological. 

This finding should not just make us scoff at ScoMo but also give us pause. The most recent recession was short because it was not about debt. But right now Australia is building up debt in very significant volumes, especially for owner-occupied housing. There’s $1.3 trillion on the mortgage books — a record. And rates are about to rise. The foundations may be being built for a longer and much more painful recession, even as Morrison boasts of his success.