Last week saw the release of fourth quarter GDP data for Australia. Generally, the mainstream media tells you the headline figure and then moves on. But it’s actually worth digging into the numbers a little to get a better idea of just how strong (or weak) the economy is.
That’s because the headline rate tells you nothing. Or almost nothing. It gives you the gist, and that’s about it. And while I wouldn’t exactly say that the Australian Bureau of Statistics is my favourite website, it does contain a wealth of data in the national accounts.
If you know where to look, this data will give you a good read on the Aussie economy, and some insight into the outlook for interest rates.
Right then, let’s start with the gist — the headline growth rate, or the seasonally adjusted ‘real’ rate of economic growth. For the three months to 31 December, it came in at 0.4%, and 2.4% for the whole year.
Not great…but not bad, either.
Breaking this figure down shows that the domestic economy did OK over the past year, growing by 3%. (That’s the ‘gross national expenditure’ figure in the national accounts.) ‘Net exports’ were a drag on growth, and this is why the headline figure was 2.4%, as opposed to national growth of 3%.
Net exports measure the difference between exports and imports volumes. (It doesn’t take prices received or paid into account.) Over the past 12 months, imports grew by 6.6% while exports could only manage a 0.8% increase. Hence, net exports detracted from growth.
But where there is strong import growth there is generally strong household consumption. And while everyone seems concerned about the financial health of Aussie households, it appears as though Aussie households are doing OK.
‘Household final consumption expenditure’ was the largest contributor to growth in the quarter, increasing by 1%. Which is a rather strong 4% growth rate annualised. That will give the RBA some comfort about raising interest rates…
Detracting from the headline growth rate during the quarter was investment, or ‘gross capital fixed formation’. Both dwelling and non-dwelling construction fell in the December quarter, and, combined, detracted 0.6% from the quarterly growth rate.
Over the past 12 months, dwelling construction fell 5.8% (the housing construction boom is clearly over) while non-dwelling construction (think infrastructure) is up 8%.
As an aside, if you’re looking for a house price collapse, the drop in dwelling construction isn’t great for your prognosis. It means less supply, and less supply with an expanding population will provide support for high house prices (providing employment and wages hold up).
Speaking of population growth, it’s been one of the great and sneaky forms of economic growth pursued by our politicians over the years. Why pursue difficult structural reforms to boost productivity when you can just juice the economy via population growth? It’ll take people ages to work out why the roads are clogged, schools are crowded and health care system is under the pump…and when they do you’ll be somewhere else on a lifelong pension…
With that in mind, get this…
Per capita GDP growth for the December quarter came in at…a big fat zero!
That’s right, when adjusted for population growth, the economy did not grow in the final quarter of the year. And in the last 12 months it only grew 0.8%! What a farce…
It gets better though — or worse.
There is another measure of economic growth that provides a more realistic snapshot of how the economy is travelling. This measure is called ‘real net national disposable income’. Unlike the net export figure I mentioned above, this figure factors in the price of imports and exports, rather than just the volumes traded.
So if the price of Australia’s number one export, iron ore, rises or falls sharply, for example, this measure will pick that up. Which is important, because these price fluctuations are real and have an impact on the economy.
In the December quarter, ‘real net national disposable income’ (which I’ll just call national income) was flat…it didn’t grow at all. And over the past year, it only grew by 1.5%.
But on a per capita basis — that is, adjusted for population growth — national income fell 0.3% in the December quarter and was flat for the year.
I can guarantee that you won’t hear a politician mention those figures. Nor will you hear a business journalist ask a question about them. But they are quite stark. That is, without population growth, Australia is sailing close to recession territory.
I’m not saying that population-led growth is ‘fake’ growth. Many countries enjoy the benefits of population growth and those benefits are real — including the cultural aspects.
But I am saying that in the aggregate, the economy is barely growing for the average person. That is, living standards are not rising.
At an individual level, that’s not the government’s responsibility. It is everyone’s individual responsibility to improve their own standard of living, and not expect the government to do so for them. But at the aggregate level, it is certainly the role of government to ensure that people have the opportunities if they wish to take them. And on this front, they’re failing us badly.
Editor, Crisis & Opportunity