Australia isn’t in recession – but we might as well be | Greg Jericho

The latest GDP figures released yesterday reveal the Australian economy continues to be stuck in the post-GFC malaise of low economic growth , and where government spending and population increases are keeping the economy growing but household living standards remain stagnant.

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In the December quarter the economy grow by a rather middling 0.36% in seasonally adjusted terms – the third worst quarterly result in the past five years:

Australia’s GDP – quarterly growth

-0.4%-0.2%0%0.2%0.4%0.6%0.8%1%1.2%2009201020112012201320142015201620172018

Trend

Seasonally Adjusted

Trend

Seasonally Adjusted

Chart: Greg Jericho Source: ABS 5206.0, Table 1, derived Get the data Created with Datawrapper

The trend result was marginally better – quarterly growth of 0.6% and year-on-year annual growth of 2.6% – which was an increase from 2.4% in the September quarter:

Annual GDP growth – trend

GDPGDP per capitaNominal GDP

Created with Raphaël 2.1.2

1.0

2.0

3.0

4.0%

Mar 03

Sep 03

Mar 04

Sep 04

Mar 05

Sep 05

Mar 06

Sep 06

Mar 07

Sep 07

Mar 08

Sep 08

Mar 09

Sep 09

Mar 10

Sep 10

Mar 11

Sep 11

Mar 12

Sep 12

Mar 13

Sep 13

Mar 14

Sep 14

Mar 15

Sep 15

Mar 16

Sep 16

Mar 17

Sep 17

Chart: Greg Jericho Source: ABS 5206.0, Table 1, derived Get the data Created with Datawrapper

But that is pretty small joy, given it marks 21 consecutive quarters where trend GDP growth has been below 3%, the longest such streak ever recorded – the next longest was 13 during the GFC. It means that in the past nine and a half years, there have only been four quarters of annual growth above what used to be considered the average level of 3%.

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Over the past five years, Australia’s economy has been growing at an average of just 2.4% each year, and GDP per capita (which takes into account population growth) has averaged just 0.9% growth. Both of these levels are consistent with periods in the past where we have been in a recession.

5 year average GDP growth

0.00%0.50%1.00%1.50%2.00%2.50%3.00%3.50%4.00%4.50%5.00%19801985199019952000200520102015

GDP

GDP per capita

GDP

GDP per capita

Chart: Greg Jericho Source: ABS 5206.0, Table 1, derived Get the data Created with Datawrapper

That we have not had a recession only serves to demonstrate the economic middling we are now experiencing – no busts, but little sign of a boom either, and overall slower growth than you would expect – especially given the strong employment growth last year.

When we look at total calendar-year growth (which compares all economic activity over the year with the previous year) we see that we have now had 26 years of consecutive growth, but the 2.3% calendar-year growth of 2017 is the third worst during that period:

Calendar year GDP growth – past 50 years

Created with Raphaël 2.1.2

2.0

4.0

6.0%

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

Chart: Greg Jericho Source: ABS 5206.0, Table 1, derived Get the data Created with Datawrapper

When we look at the contributions to GDP growth we get an idea of why things are so weak.

In the December quarter, spending by governments in effect cancelled out the impact of net exports, which detracted from growth because exports fell and imports rose.

Contributions to GDP growth (seasonally adjusted)

QuarterlyAnnual

Created with Raphaël 2.1.2

0.56% pts

Net exports

0.5% pts

-0.48% pts

Net exports

-0.48% pts

Non-dwelling construction

-0.07% pts

Dwellings

0.14% pts

Mach & equip

0.15% pts

Public inv

0.32% pts

Govt cons

0.56% pts

Household cons

Chart: Greg Jericho Source: ABS 5206.0, Table 2, derived Get the data Created with Datawrapper

It is a continuation of the very strong impact of government consumption and investment on GDP growth over the past two years – about 40% of which come from the federal level (spending on things such as defence, the NDIS, aged care and the PBS), and 60% from the states – especially infrastructure spending.

Contribution of govt spending & investment to GDP growth

QuarterlyAnnual

Created with Raphaël 2.1.2

0.5% pts

Mar 03

Sep 03

Mar 04

Sep 04

Mar 05

Sep 05

Mar 06

Sep 06

Mar 07

Sep 07

Mar 08

Sep 08

Mar 09

Sep 09

Mar 10

Sep 10

Mar 11

Sep 11

Mar 12

Sep 12

Mar 13

Sep 13

Mar 14

Sep 14

Mar 15

Sep 15

Mar 16

Sep 16

Mar 17

Sep 17

Chart: Greg Jericho Source: ABS 5206.0, Table 2, dervied Get the data Created with Datawrapper

With government spending cancelling out the fall in exports, that left household consumption as the major driver of growth. We spent enough to counteract the drop in construction, but only just.

So we remain an economy very much dependent upon household spending (not surprising given it accounts for nearly 60% of GDP, but even though there was a nice boost in spending in December off the back of the latest iPhone, a look at the annual growth shows just how limp our spending remains compared with previous years. In the past year, household consumption grew by just 2.9% – marking six years since it has grown by more than 3%:

Household consumption – annual growth

0%1%2%3%4%5%6%7%200220042006200820102012201420162018

Annual

2000-08

2009-17

Source: ABS 5206.0, Table 2, derived Get the data Created with Datawrapper

And there is little reason to think this is going to change any time soon.

Yes, total wages grew by 4.4% over the past year – the strongest growth for six years – but that was mostly due to the strong increase in employment. It wasn’t so much wages growing as more people getting a wage.

The treasurer, Scott Morrison, tried to paint a nice picture of this, pointing out that “one third of the through-the-year increase was driven by average wages”, but that is actually a pretty poor result. Usually, average wage increases account for nearly 60% of the total wage growth.

Average compensation per employee grew by just 1.3% in the past year – a pitiful amount:

Compensation of employees – annual growth

0%1%2%3%4%5%6%7%8%9%10%11%2000200220042006200820102012201420162018

Total

Avge per employee

Total

Avge per employee

Chart: Greg Jericho Source: ABS 5206.0, Tables 7 & 24, derived Get the data Created with Datawrapper

And worse, it means that as inflation grew by 1.9%, real average compensation per employee actually fell 0.6% in 2017.

In real terms, the average compensation per employee of $19,902 is now 3.7% below the peak of March 2012, and still below the $19,358 recorded seven years ago in December 2010:

Real average compensation per employee

Dec 2017 dollars, declined using CPI

$16500$17000$17500$18000$18500$19000$19500$200002000200220042006200820102012201420162018

Average

Chart: Greg Jericho Source: ABS 5206.0, Table 24, 6401.0, derived Get the data Created with Datawrapper

Not surprisingly, in that time real household incomes have also been flat. While there was a slight improvement in the December quarter, real household incomes fell in 2017 and remain 0.1% below where they were at the 2013 election:

Real household disposable income per capita

Dec 2017 dollars, deflated using CPI

$9,000$9,500$10,000$10,500$11,000$11,500$12,00019982000200220042006200820102012201420162018

Real household disposable income per capita

Chart: Greg Jericho Source: ABS 5206.0, 6401.0, derived Get the data Created with Datawrapper

While the numbers are not terrible – the economy is still growing, investment in machinery and equipment is improving – there is very little to crow about.

At a certain point, boasting about not having experienced a recession for over a quarter of a century is going to seem pretty hollow, especially when both current economic and household income growth per capita remain at levels more associated with recessionary periods.