Slow growth a quick path to problems
THE numbers look grim.
With the Australian economy expanding by just 0.2 per cent in the June quarter, we’ve slipped back to an annualised growth rate of 2.0 per cent.
This is well below longerterm trend and, if sustained, not enough to support the employment growth needed to meet the demands of an expanding population.
It was only a lift in government spending – supported to some extent by household consumption and dwelling investment – that prevented us falling into contractionary territory.
More worryingly, one of the key measures of national (and household) prosperity, real net national disposable income per capita, declined for the fifth successive quarter.
Nominal GDP growth, which doesn’t take inflation into account, is at its lowest level in some 50 years.
In other words, we might be working as hard as ever, but the world is paying us a lot less for our efforts. That’s reflected at a domestic level, with wages growth at an exceptionally low ebb, and inflation also well below trend.
The big drag on the economy has been a combination of the end of the mining investment boom combined with a collapse in commodity prices.
In an ideal world the massive investment we had undertaken in new iron ore and coal mines and LNG plants would have tapered off as predicted, but then been more than offset by the rivers of gold flowing from all the new capacity we had built. That hasn’t happened.
Queensland is a case in point, where one (not perfect) measure of economic activity – State Final Demand – has declined now for four straight quarters.
That doesn’t mean the state is in recession, as SFD doesn’t measure exports or inventories, and nor is it an accurate reflection of activity at a local government level.
As Queensland Treasury noted yesterday though: “Total business investment is 28.3 per cent lower over the year, as the large LNG projects near completion and transition to production and exports.”
Yes, the decline is from very high levels, and Treasury sees it “returning to a more sustainable longer term growth path from 2016-17”.
That may be, but it still means we are facing some very real challenges when it comes to replacing economic drivers with a base more sustainable over the longer term than the boom-bust equations that apply to commodities and real estate.