How a 438-year-old tradition could save Australia’s economy
Australia’s weak economy could receive a decent boost thanks to one unexpected factor: the leap year.
The leap year occurs every four years and adds one day of the month to the end of February, meaning our typical 365 days of the year becomes 366.
Because the earth doesn’t orbit the sun in exactly 365 days, the occasional extra day was added by Pope Gregory XIII in 1582, making the leap year a 438-year tradition.
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And according to KPMG chief economist Brendan Rynne, the extra day in February could make all the difference to our national economy, which has been hamstrung by the Australian bushfires, the fall-out from coronavirus, and low wage growth.
“The extra day’s GDP will add around $5.2 billion to the economy for this year’s national accounts,” he said.
“While there is an underlying weakness in economic activity consistent with potentially negative growth, the addition of February 29 into this year’s calendar may in fact mean that Australia ... will not see this result in the March quarter 2020.”
Every leap year brings the number of days of economic activity in the March quarter from 90 to 91, making it more comparable to 91, 92 and 92 days for the June, September and December quarters, he added.
Where does the $5.2 billion figure come from?
Rynne explained that GDP in the September quarter of 2019 was $447.2 billion, which comes to roughly $5.2 billion of GDP every calendar day, which is more or less consistent with average GDP per day since 2018.
For Australia to see negative growth in the March quarter, we’d have to miss out on our average growth of $2.5 billion in GDP, as well as the ‘extra’ leap year day.
“In reality this means about $7.5bn of value added would need to fall out of the economy. This is almost impossible.”
It would mean that five sectors of accommodation and restaurants, air transport, education/training, retail and other services would have to drop by 4 per cent collectively.
This would be a very large drop: to compare, these sectors fell a combined 0.9 per cent at the height of the global financial crisis in 2009.
“But for them to drop $7.5 billion (normal momentum + extra day), they have to drop 12 per cent in a quarter. That is not going to happen,” said Rynne.
So, if we do see negative growth in the March quarter, we’ll know the problem is much bigger than the extra leap year day.
“If the March quarter number is negative it will confirm that we have a bigger problem to deal with than we thought – even if it is masked by a statistical anomaly in calculating the level of economic activity.”
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