This should have come as no surprise as “special, one-off factors” have made recent quarters look better than they were – for example, without a bunching of government spending, the June quarter growth would have been negative. 

We have experienced negative quarters before, in March 2011 (put down to the Queensland floods), December 2008 (due to the GFC), and December 2000 (put down to the introduction of the GST). On each of these occasions GDP in the next quarter increased by about 1.1 percent, so we haven’t seen a recession (defined as two consecutive negative quarters) since the first half of 1991.

However, while we may be ‘lucky’ with a rebound in a key element of the GDP giving us a positive number next quarter, it would be wise to accept the fact that our economy is now very weak, at a time when the global risks and uncertainties are considerable.

Looking at the components of growth, we see household consumption and retail sales as quite subdued, while private investment in new dwellings, public infrastructure spending, new engineering spending, and net exports, were all a drain on growth.

A recession is a real possibility, the prospect of which further compounds the budget repair task.

The Turnbull Government is under very real pressure from the international rating agencies to demonstrate a clear and deliverable path to a budget surplus by the end of the decade, or we risk a downgrade in our AAA credit rating.

However, recent private sector forecasts suggest that this year’s budget deficit has already blown out further, and that the repair task is now to bring what looks like about $100 billion of prospective deficits to zero over the four year budget period.

This suggests that the Government will need to achieve further significant cuts in expenditure and raise taxes to do so. Although they would have us believe that the repair can be achieved by cutting expenditure, this seems inconceivable. Overall taxes must go up, yet the Government remains committed to a huge cut in corporate tax over the next 10 years.

Of course, another option for the Government would be to delay the budget repair, and try to convince the rating agencies that this makes sense in a flat economy.

They could use both the IMF and the OECD as an ‘excuse’ for such a delay, as both these institutions, concerned about the weakness of global growth and trade, have recently urged developed countries to consider more expansionary budget strategies, especially as monetary policies and historically low interest rates have failed to restore growth.

However, such a shift would be politically difficult, given the rhetoric and innumerable commitments by both sides of politics over recent years to return the budget to surplus (claims of “budget emergencies”, etc).

This would be ducking the issue. The only viable solution to both the budget and growth challenges is a boost in national productivity, achieved by broad-based structural reform.

This will call for genuine leadership, a willingness to step outside the day-to-day media point scoring contest, and lead with reform in education and training, tax, industrial relations, innovation and science.