The newest GDP figures launched on Wednesday counsel on the floor the general financial system is doing higher, however additional inspection highlights the underlying weak spot. The home personal sector is in a dire state, having now shrunk for 4 consecutive quarters – the worst end result for the reason that 1990s recession – and the financial system is now extra depending on authorities spending to maintain it afloat than at any time for the reason that GFC .
First the excellent news – issues are higher than we beforehand thought. The GDP figures contained some pretty important revisions of previous information, based mostly on extra correct underlying information.
Whereas in June it appeared the financial system grew by simply 1.5% – the worst since 2001 – now the ABS estimates in June the financial system was rising at an annual fee of 1.7% and is now rising at 1.eight% in pattern phrases:
That is good, and but it’s fairly unhappy actually how low the bar has change into to suppose financial development might be referred to as “good”. The present development fee of 1.eight% is round 1% level beneath the long-term pattern and properly beneath the previous marker of three% development that was thought of common.
Within the September quarter the financial system grew by zero.four% (seasonally adjusted), or zero.5% (pattern), nonetheless beneath common, however what’s essential is the place this development is being generated. The largest driver was internet exports – contributing zero.35% pts of that development.
Principally this got here not from surging exports however one other massive decline in imports:
For the previous 4 quarters we’ve got lowered the quantity we’ve got been importing. So whereas the 1% development in exports is beneath the post-GFC common, internet exports (exports minus imports) are our largest contributor to development.
The explanation we’re importing much less is as a result of each private-sector companies and households are slowing their development of spending. And that isn’t a great factor.
Prior to now 12 months family consumption grew by a mere 1.2% – lower than half the long-term common:
And that is off the again of the tax cuts. Clearly we’ve got chosen to avoid wasting extra somewhat than spend, which can also be mirrored by the financial savings ratio growing from three.5% to four.zero%.
The treasurer and prime minister have each recommended that is advantageous – they argue it’s as much as folks to resolve the best way to spend their cash – however it displays a usually detrimental outlook.
Consequently the second-biggest contributor to GDP development was not family consumption however authorities spending:
Principally that is elevated spending on the NDIS and aged care. It isn’t resulting from a giant improve in infrastructure.
Within the September quarter, public-sector funding contributed simply zero.03% pts to GDP development and a mere zero.01% pts over the previous 12 months – the bottom quantity for 4 years:
The previous two quarters have seen the uncommon case the place authorities spending is contributing extra to financial development than that of households. That usually occurs solely throughout recessions or sharp downturns such because the GFC:
It means if we take away authorities spending and funding in addition to internet exports, the personal sector home financial system is shrinking – it has fallen for 4 consecutive quarters and is down zero.eight% up to now 12 months:
This once more is a really unhappy state of affairs – basically suggesting the home personal sector is in a recession. It’s definitely not resonant of an financial system with sturdy fundamentals.
Equally, the productiveness development figures echo the dire outcomes revealed earlier this week. GDP per hour labored has now averaged an annual development of simply zero.2% over the previous three years – the worst end result for the reason that 1990s recession:
That is disastrous, given 1% common productiveness development is usually considered because the long-term minimal that’s completely essential for making certain long-term wage and earnings development.
On the latter, a minimum of this quarter has seen some enchancment. Actual family disposable earnings per capita rose zero.9% over the previous 12 months – the strongest development since 2015 – a welcome enchancment, even when it solely repairs the autumn of the previous few quarters:
However once more, once we look nearer we see the advance isn’t resulting from a basic well being within the financial system, however somewhat simply the tax cuts. The extent of earnings paid in tax in actual and per capita phrases fell 2% within the September quarter, however gross family earnings per capital didn’t rise in any respect in actual phrases:
Little surprise that households took the tax cuts and put it on their mortgage or paid off their bank card somewhat than really feel assured sufficient to spend the cash.
The most recent figures present that the financial system stays very weak. Neither the tax cuts nor rate of interest cuts have seen households improve spending. Sure, the tax cuts have helped improve family disposable earnings – however that’s an apparent factor: if you happen to tax folks much less, they’ve greater disposable earnings.
However the level of tax cuts is to spur financial exercise. And so far there are not any indicators of that taking place in any respect.
• Greg Jericho writes on economics for Guardian Australia