Today the government has been madly attempting to spin the GDP figures as good. So let’s cut straight to the point – the figures are terrible and are among the worst we have seen this century. But what makes it worse is this government would have us believe they saw them coming.
How bad are things? Today’s figures show the worst annual economic growth for 18 years. GDP per capita is now lower than it was a year ago, productivity is plunging and the economy is pretty much staying above water purely because of government spending and a drop in imports due to weak investment and household spending.
And yet these are the figures the treasurer, Josh Frydenberg, would have us believe are evidence of the “resilience of the Australian economy” and which the prime minister, Scott Morrison, said would “come as no surprise to me”.
If this is how bad things get when the government says it is not being surprised, God help us if they ever get a shock.
Today’s figures released by the ABS show the economy grew by 0.5% in the June quarter in seasonally adjusted terms and 0.4% in trend terms. Through the year the growth was a truly pathetic 1.4% seasonally adjusted and 1.5% in trend terms.
That trend growth figure is the worst since March 2001.
We have now had four consecutive quarters of trend growth below 0.5% – that hasn’t happened since the 1990s recession nearly 30 years ago.
It is also the first time since the GFC that GDP per capita is lower than it was a year ago:
It was little wonder, in his press conference announcing the figures, that the treasurer quickly turned to talking about employment growth compared with the rest of the OECD, because there is not much to boast about on the whole economy side of things.
Current growth has us in the bottom half of the OECD:
The figures also showed, despite the treasurer’s protestations, that living standards are continuing to decline.
The treasurer suggested that “living standards continue to increase with real net national disposable income per capita rising 1% to be 2.7% higher through the year”.
But that figure includes all income – both profits and wages. As such, when profits grow strongly due to big increases in export prices, then national income rises. But unless that flows through to households via wages growth, it is pretty meaningless to use it when talking about living standards.
And we know that the big increase in income is coming from profits – primarily from the mining sector – and it is not flowing through to households.
When we look at household disposable income we see that it fell not just in the June quarter but over the past year – down more than 1%. Household incomes per capita are currently at the same level they were in real terms in 2010.
Households of course know their living standards are falling, because they are showing it in how they spend their money. In the past year household consumption grew just 1.5% – again the worst result since the GFC:
But the treasurer, despite his talking up the figures, knows just how bad they actually are. He even noted that while profits in the mining sector rose 10.6% in the June quarter, in the non-mining sector they “actually fell 0.6%”.
Because profits in the mining sector have grown so strongly and compensation to employees is growing so weakly, the share of national income going to workers has plunged. The last time the share of national income going to workers was this low, the Beatles had just toured Australia:
What else can we point to? How about productivity – it continues to fall. The three-year average annual growth figure of 0.4% is the worst it has been since the 1990s recession:
Apparently this all fits in with the treasurer’s view that “the Australian economy has shown remarkable resilience, and these numbers are a repudiation of all those who have sought to talk down the Australian economy”.
The reality is if you take away the contribution of government spending, the economy actually would have shrunk in the June quarter. In seasonally adjusted terms, government spending on areas such as the NDIS, aged care and flood and drought relief contributed 0.51% points to growth in the June quarter – and GDP only grew by 0.48%.
In trend terms the economy grew by 1.5% in the past year but 0.96% points of that came from government spending:
If we include public investment, government spending overall accounted for nearly 70% of the growth in the economy in the past year – a figure not far below that which occurred during the GFC.
If we take out government spending and investment, and also trade, the private sector shrank 0.5% over the past year. That only happens when the economy is pretty much in the toilet:
So thank God for government spending and exports – and yet even here the picture is less than rosy. Trade helped our growth, but not so much because exports have been taking off, but because our imports have shrunk.
Imports reduce GDP so when we cut the amount we are importing that actually helps GDP growth.
But we don’t actually want to cut out imports – it is generally a sign that the economy is in trouble because it means businesses are not investing in big equipment and households are reducing their spending.
And, finally, the news is poor using my own measure of economic health – which looks at a combination of real GDP and inflation. It shows that we remain as far below the sweet spot of average GDP and inflation growth as we have been since the 1990s recession:
The treasurer and prime minister can try to spin these figures as good news, but they are not. They are terrible, and they show much bigger problems than will be solved by a tax cut.
And we should also note that when the government claims they are not surprised and saw this coming, it also suggests they also chose not to do anything to prevent it.
• Greg Jericho writes on economics for Guardian Australia