Economic growth stuck in slow lane

Australia’s economic growth remains in the slow lane, with annual GDP growth for 2018 just 2.4%. While the headline number is a concern, there are some more positive signs than perhaps a year ago, not least of which is a positive contribution – at last – from Business Investment, which contributed 0.6% of GDP growth over the year.

The chart below shows GDP growth since 2007.

fig 1

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

The chart demonstrates the point that while Australia’s GDP has been lower on an annualized basis, over the last decade, it has tracked largely sideways since the stunning slump of 2013. 

Before we consider the contributions to economic growth, it is relevant to note that in general, it is population growth and government spending that are making most of the running on economic growth, as Greg Jericho discussed in The Guardian. Now that is not an uncommon experience, as the spike in the middle of the chart shows. That was the period in which GDP rose as a result of several forms of economic stimulus from the Commonwealth Government. 

Jericho points out that, “Over the past five years, Australia’s economy has been growing at an average of just 2.4% each year…” and he adds “…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%.”

The alternative (marginally) view is expressed by Ross Gittins, who wrote in The Age that matters are not as bad as they look, because economic growth is not far from the target of 3% per annum, a level the RBA forecasts will be reached by the end of 2018.

So we might consider that the Australian economy’s growth is consistent with periods of recession. As Jericho puts it, this is a ‘middling’ period, in which there are “…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.”

It is only from the contributions to economic growth that a clear picture of the causes of slow economic growth emerges. There is, when all the data is considered, something missing in the jigsaw of economic growth – household consumption expenditure.

About 60% of the Australian economy is driven by household level consumption. As the chart below shows, other than when it was propped up by post-GFC Government support, since the excoriation of 2008-09, households have not contributed at their historic levels.

fig 2

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

As Julius Sumner Miller would have asked, ‘Why is it so?’ There is no easy answer to this critical question, but Jericho points out that real average wages have been in decline since 2012, and that household disposable incomes are 0.1% below where they were at the 2013 election, as the chart below shows.

fig 3

Wages growth, or rather, the absence of it, has resulted in households having no greater capacity to expend, than was the case half a decade ago. Ross Gittins points out that higher employment, coupled with population growth, mean there is some growth in household consumption, but it is at a relatively indifferent level.

There is no cause of absolute alarm in Australia’s GDP, but it is obvious that national economic growth could use some improvements that are not purely structural (population) or linked to government expenditure.