Plunging economic growth: thank goodness for exports and Government spending


Annualised economic growth – measured by Gross Domestic Product (GDP) – stumbled through to a seasonally adjusted 1.4% in 2018-19, with June Quarter economic growth staggering to 0.5%, assisted primarily by Government expenditure. Despite brave efforts to talk the result up, the reality is that Australia’s economic growth has rarely been worse, and certainly has not been this poor since 2001.

The indicators have long been in the Australian economic data: declining productivity, over-reliance on exports and government expenditure, lousy retail sales, poor wages growth and slack business investment are just a few. Combined, they have contributed to slowing economic growth that has delivered this very poor GDP outcome.

The long-running chart below (it goes back 50 years or 200 quarters) shows both quarterly economic growth (blue bars) and the annual, seasonally adjusted GDP outcome. It shows that there have been periods where the volatility was greater than now, and periods when economic growth was negative, constituting technical recession.

But what the chart points to most of all is that we are continuing to operate in what is clearly the longest period of stagnation across the half century. That already poor growth has turned down further is cause for deep concern, if not outright alarm. That it has done so with what is clearly a long-term downwards trend adds to the concerns.

 Fig 16

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Writing in The Guardian, Greg Jericho produced the following chart that shows Australia’s economic growth in the June Quarter languished behind the OECD’s average GDP growth. We may not be alone, but in large part, we are not in great company either.

GDP Growth


So, before we go all glum, lets look at what has worked for Australia’s GDP over the last quarter and year.

The chart below shows some of the key Government and business inputs into GDP growth over the last eight quarters. We can see in the chart some altering trends over the period. The first (in pink) is that the negative contribution of imports has diminished, to the point where it added to economic growth in each of the last two quarters. Good news, but worrying is that on the flipside, business investment (in green) has headed in the opposite direction.

When we think about business investment, it is not just its contribution in the current quarter, it is the contribution it makes long into the future that makes it so important. Business investment today is usually productivity tomorrow, adding to GDP, long after the investment itself has been forgotten.


Fig 17


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If there are constants in the last two years of GDP data, it is the stability of the export contribution and that of government expenditure. In the June quarter (in red) we can see that Government expenditure kicked up from the 0.7% of the prior quarter to a solid 1.2%.

That is fortunate, not to say, lucky!

Without that government contribution and relatively stable support from exports (0.6% up from 0.5%), the sharp decline in business investment (-1.0% down further from -0.7%) and inventory (-0.7% down from 0.0%) would have dragged GDP growth into negative territory.

No one would be shocked if the prevailing conditions had seen economic growth go lower. After all, we don’t get two successive interest rate cuts from near-nothing to even-closer-to-nothing for no reason!

The problem with exports leading GDP growth is not the national income that is created from it – the economy likes that, at least the traditional measure of GDP likes it. Rather, the issue is how that income is distributed. Most of the export income has been earned by mineral and energy resource exports. Most of that income goes into the profit share of national income, not the wages share. Witness the chart below, which just for fun, also goes back fifty years.


Fig 18

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The wages share of national income is clearly declining. The implication at this point should be clear. If wages earners are earning less (in real terms obviously), household consumption will necessarily play a smaller role in economic growth.

If it was not already clear enough, the chart below helps a little to emphasise the point. It shows growth in total employee compensation (the blue line) and average growth in employee compensation (the red line). Total compensation grew at 5.0%, but the average grew at just 2.5% over the year-ended June 2019. Those whose incomes grew more than the 2.5% average were probably already earing more and are part of the net saver community. They didn’t necessarily spend their income and thus, that higher remuneration barely contributed to GDP growth at all.

Fig 19

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



Wages, the share of national income going to wages, household consumption arising from that and its contribution to economic growth are pivotal to Australia’s economic future. That’s not just in respect of GDP, and it is not just about today. Tomorrow’s economic growth and national living standards are under pressure and as a result, tomorrow’s economic conditions are under severe stress.

Little wonder that economics is described as the dismal science.