The is the latest GDP figures released on Wednesday by the Australian Bureau of Statistics revealed that in the first three months of this year, the Australian economy shrank for the first time in nine years and dispelled remaining doubts that we were in a recession.
That the main news is that Australian GDP fell 0.3% in the March quarter – the first fall since March 2011 when Typhoon Yasi and the Queensland floods brought the economy back to the stake.
Because the Ministry of Finance and every economist expect the June quarter to be worse, this means that Australia will undoubtedly experience a “technical” recession that is mistaken about two consecutive quarters of negative growth.
The reality is, as treasurer Josh Frydenberg confirmed on Wednesday, we are already in a recession. When degree of underutilization up 6.8 percentage points in one month, anyone who thinks we need to look further to find out if we are in a recession or not have to ask ourselves what they really think about recession.
These figures also reveal that GDP per capita has fallen in the past year – the first time since the GFC:
The economic story of the March quarter was three things – government and household spending, and imports.
Households make up about 56% of our entire economy, so when we stop spending, our economy is in big trouble. And in the March quarter we completely stopped shopping.
Household consumption fell 1.1% – the biggest quarterly decline since 1986, and our annual spending growth fell 0.2% – the worst decline since GFC:
That bad, we shouldn’t forget that everything wasn’t good even before the virus. It has now been more than eight years since our spending growth has been above the long-term average. And even before the beginning of the year declined.
Our panic made the numbers no worse than before. Household spending on food grew 5.7% in the March quarter – the biggest quarterly growth recorded by some distance:
While the decline in our household consumption is staggering, the reason for the massive decline is not fully reflected in the overall GDP figures is because of two other parts of this story – government spending and imports.
While other aspects of the economy are down, government consumption adds 0.3 percentage points to GDP growth and imports add 1.3 large percentage points:
The reason imports are added to growth is (confusing) because imports actually reduce GDP. When we import something that is money goes abroad and it reduces our economy. But when the amount we import falls, it actually helps increase GDP growth.
In March, both imports and exports fell, but imports fell far more:
This is why economists and treasurers can say “net exports” added to GDP growth. Not because our exports have increased, but they have fallen less than our imports.
Falling imports are actually not a good sign. While imports alone can cause our economy to shrink, what is used to improve our economy. So as a rule when imports fall it’s because households and businesses are less likely to spend money – and that’s not good.
The final aspect of this story is government expenditure.
If we take the amount that the government contributes to the economy, our GDP will go down not 0.3% but 0.7%.
And if you eliminate the impact of our trade, the economy will shrink by an amazing 1.1% in the March quarter.
Because the domestic private sector has shrunk 1.4% over the past year – again the worst result since the GFC, but given how poor its performance has been in the last 12 months, it’s not entirely unexpected:
But while total government spending has increased our economic growth, a large part of it comes from consumption – things like spending on NDIS, and on wages and government support.
Growth in government investment has obviously been tempered – and has been for some time now:
Government spending on benefits helps stabilize the economy, but if you want long-term growth, you need to increase its production capacity – and that comes through investment.
And if we want to have hope for recovery, and if we want recovery to bring long-term benefits, then we need the government to increase investment and increase it quickly.
Wednesday’s figures are bad but worse is yet to come, and the road to recovery will be long and must be paved with public investment.
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