By Ross Gittins
The econocrats are probably erring on the optimistic side with their revised forecasts for the economy but, boy, they're certainly giving things a mighty kick along.
Treasury says it now expects real gross domestic product to grow by a not-too-terrible 2 per cent this financial year, then recover slightly to 2.25 per cent in 2009-10.
We'll see the Reserve Bank's revised forecasts in today's quarterly statement on monetary policy, but they're not likely to differ greatly. (Note that Treasury's forecasts are expressed on an average-for-the-year basis, whereas the Reserve's are on a year-ended basis, which makes them look more volatile.)
Note, too, that it's the mark of an amateur to imagine there's a significant difference between Treasury's forecast of 2 per cent and the International Monetary Fund's forecast of 1.8 per cent.
There's more guesswork in economic forecasting than economists like to admit, but that must be doubly true at a time when such unprecedented (and scary) upheavals are occurring in the global economy. The econocrats always err on the optimistic side at this point in the cycle (the point where we ask whether the landing will be soft or hard) and I'm not one to criticise them for that. You've got to cut them some slack.
Because they get taken so seriously, the predictions of treasurers and central bank governors have the potential to be self-fulfilling - particularly negative predictions at a time when confidence is lacking - so it's not in the economy's interest to have officials spreading pessimism.
If we fall into recession, Wayne Swan will be the last to say so - which is as it should be. He'll admit it when it can no longer be denied: at his press conference on the day of the release of the national accounts recording the second successive quarter of "negative growth".
That was when Paul Keating was forced to admit it in November 1990. Keating being Keating, he sought to pretend it had happened by design rather than accident, proclaiming it the recession "Australia had to have". Be sure your bravado will come back to haunt you.
If you read the midyear economic and fiscal outlook document carefully you see one of the devices Treasury used to produce forecasts that erred on the optimistic side: it changed its methodology.
To date, its forecasts have been built on the technical assumption that interest rates will remain unchanged during the forecast period.
This time it assumed that rates will fall in line with market expectations.
Another point to remember is that the growth forecast for this financial year is 0.5 to 1 percentage point higher than otherwise because of the effect on the economic security stimulus, with employment being "up to" 75,000 higher than otherwise for the same reason.
This is a reminder of a genuinely optimistic point: the macro managers are going all out to counter the many negatives bearing down on the economy.
In following the advice of the Treasury Secretary, Ken Henry, to "go early, go hard and go households", the Rudd Government has implemented a powerful fiscal stimulus.
In marked contrast to the foot-dragging in the early 1990s, Wayne Swan was out of the blocks with remarkable alacrity, not even waiting for revised forecasts to be prepared. The earlier you act, the greater the likely benefit.
By "go hard", Henry meant do a lot, and $10.4 billion in one year - almost 1 per cent of gross domestic product - certainly qualifies.
By "go households" he meant give cash grants to the people most likely to spend them (pensioners, families with children, first home buyers) rather that funding new infrastructure (which takes many months to get going and creates mainly skilled jobs) or job-creation schemes.
Most of the $10.4 billion will have been paid out by mid-December. Note, too, that the one-off nature of the payments means no ongoing increase in spending.
This is state-of-the-art Keynesianism. And Rudd has signalled willingness to do it again if necessary.
When you turn to monetary policy, you see the Reserve Bank's efforts to support demand are just as front-end loaded and just as huge. In just two months - early September to early November - the Reserve has cut the official interest rate by 2 percentage points, shifting the stance of policy from quite restrictive to neutral.
Any further cuts will take the stance into the accommodating range. And we can be confident the Reserve won't be hesitant about going there.
As Scott Haslem of UBS Securities has observed, policy has been highly pre-emptive. Historically, jobs growth and GDP growth have slowed much more - and the unemployment rate risen much more - before the Reserve has dropped the official rate by such a proportion.
Finally, remember that it's not just easings in the stances of fiscal and monetary policies that impart stimulus to demand. Provided it moves in the right direction, the exchange rate does, too.
Treasury argues in the midyear review that the forex market often treats the Aussie dollar as a bellwether for global growth, causing it to fall sharply when global growth prospects deteriorate.
That's a good deal for us. Falls in the Aussie provided crucial support for the economy during the Asian crisis of 1997-98 and the US recession of the early 2000s.
This time it's fallen by about 30 per cent against the trade-weighted index since its peak in July.
This will "help insulate Australia from some of the effects of the global slowdown by boosting the attractiveness of our exports and supporting production in import-competing industries", Treasury says.
If we do suffer a hard landing, it won't be for want of trying.
Ross Gittins is the Herald's Economics Editor.