Don’t mention the ‘R’ word

Australia’s economic growth is under pressure, with the latest Gross Domestic Product (GDP) figures causing a range of economists and commentators to mutter about the ‘R’ word. They may be cautious, but the evidence is mounting that like some other countries, Australia’s growth has stalled.

Coming in at a low 0.2% for the December quarter, Australia’s GDP was a seasonally adjusted 2.3% in 2018, down 0.1% on 2017. This ‘headline’ GDP data is displayed in the chart below.


To go straight to the dashboard and take a closer look at the data, click here.

Technically speaking, a recession requires two consecutive quarters of negative economic growth. Australia has not had a recession for 28 years, and the last quarter of negative economic growth was booked in the March quarter of 2011.

A cursory glance at the chart would suggest that though quarterly growth is weak, annual economic growth is roughly in line with the entire period since 2013. But that measure is misleading, as the ABC’s Michael Janda pointed out in early March commenting:

“The release of the latest December quarter GDP figures have prompted discussion of a "per capita" recession — that is, on a per person basis, Australia's economy shrank over the last two quarters.”

So Australia may be a little distant from a technical recession right now, but on some measures, it is in one already. The Guardian’s Greg Jericho had a go at the same issue and supplied the chart below, which shows that quarterly GDP per capita growth was negative in the December quarter.


There are other policy elements to this issue. As Michael Janda puts it pretty clearly, as he weighs in on a current debate:

“Population growth inherently boosts economic growth — every extra person needs something to eat, somewhere to live, doctors to treat them, someone to cut their hair, and generally a job to pay for it all.”

Yes, population policy is a factor that impacts economic growth, and it is only one of many. This is particularly because, a complex matter at any time, these are by no means ordinary times for economic growth.

In the Global Financial Crisis a decade ago, Australia dodged the recession bullet in just one way. It primed the expenditure pump with cash handouts and the nation spent its way to success. But those were simpler times and the cause of the economic glut was pretty much obvious.

Beyond population, as Janda points out, the GDP figures are real and are not based on adjustments for prices that provide a nominal GDP figure. Nominal GDP in 2018 was 5.5% higher than it was a year ago. In short, Australia produced less, but got paid more for it, especially because of higher export prices and lower import prices. We can see this in the chart below, which also demonstrates that it’s only a year or so back that imports were worth more than exports.


To go straight to the dashboard and take a closer look at the data, click here.

Australia’s economic growth profile sees it just an event or two away from entering negative territory. To understand this in more detail, read the next couple of items in this edition of Statistics Count.