Ahead of the release of Australia’s gross domestic product (GDP) for the June quarter, economists say economic growth has virtually ground to a halt.
- The latest economist forecasts for GDP range between 1.1-1.6pc growth over the past year
- JP Morgan’s Sally Auld said per capita GDP growth has slowed from about 3pc before the GFC to about 1pc over recent years
- Economic growth over the first half of the year has been much lower than the RBA expected
National Australia Bank has forecast economic growth of just 0.2 percentage points, bringing the annual pace of growth to 1.2 per cent — the slowest pace in almost two decades.
The latest check of retail sales shows that the recent tax offsets and interest rate cuts are not yet finding their way into the tills of the nation’s retailers.
Australian retail turnover fell 0.1 per cent in July 2019, seasonally adjusted, according to the bureau of statistics.
There were falls in clothing, footwear and personal accessory retailing (-1.0 per cent), other retailing (-0.4 per cent), and department stores (-0.2 per cent).
“It’s a struggle,” National Australia Bank chief economist Alan Oster said of the figures.
“You’ve got a very unusual situation where the private part of the economy is actually going backwards.
“It’s not that the consumer is basically bust … they’re not, they’ve got lots of assets. But they’re worried about their cash flow, and that says to me it’s not going to get better anytime soon.”
Reserve Bank governor Philip Lowe and Treasurer Josh Frydenberg agree “the fundamentals of the economy are strong”.
However, in yesterday’s post-RBA meeting statement, the governor conceded: “Economic growth in Australia over the first half of this year has been lower than earlier expected, with household consumption weighed down by a protracted period of low income growth and declining housing prices and turnover.”
The economics team at JP Morgan Australia said while the economy as a whole is managing to stay afloat, the individual experience of the economy (at the household level) has deteriorated markedly over the past five years.
“If we go back maybe 10 or 15 years, GDP per capita [growth] was averaging about 3 per cent, which meant that our living standards were growing at a pretty good clip,” JP Morgan chief economist Sally Auld said.
“If we take the average of the last five or six years, that’s now growing at 1 per cent.
“What that tells us is that the rate of increase in the economy, when we adjust for population growth, has slowed quite a lot over the last decade or so.”
Some ‘potential benefit’ from a recession
Neither Alan Oster nor Sally Auld are optimistic about the economy improving dramatically in the next few years.
That, they said, would require a significant drop in the unemployment rate and a big increase in wages, which are both unlikely to happen.
“One of the issues this economy will need to address over the next five or 10 years is how we effect a gentle deleveraging of household balance sheets,” Ms Auld said.
“That’s one thing that I think will hold the household sector back, particularly if we’re in a world where income growth doesn’t pick up.”
Ms Auld told PM a recession is never desirable, but it would ultimately put the Australian economy back into a position where stronger growth was possible.
“There’s a reason why you have recessions, which is, you can cleanse balance sheets, deleverage them very quickly, which means that you allow yourself plenty of scope to grow in the aftermath of a recession.”
“I guess that’s the potential benefit from having had a recession.”
NAB’s Alan Oster agreed with Ms Auld that having a recession would likely prompt a lot of much-needed microeconomic reform.
“If you’ve got a burning platform, probably you can do things,” he said.
But he did not believe it would get the Australian economy back to the stronger growth politicians are looking for more quickly.
“I really hate recessions because they typically put you back a long time,” he said.
Without China’s insatiable appetite for Australia’s raw materials, such as iron ore and coal, Australia would already be at risk of recession — defined as two consecutive quarters of falling GDP.
The latest check of the health of Australia’s trade sector shows it remains robust.
According to the Bureau of Statistics, the largest quarterly goods and services surplus on record at $19.9 billion and a narrowing net income deficit to $13.9 billion contributed to Australia recording a seasonally adjusted $5.9 billion current account surplus for the June quarter 2019.
However, even Australia’s export industry is now under threat from a global economy facing numerous obstacles, including the US-China trade war and Brexit.
“There’s about a 40 per cent chance of a global recession at some point in the next 12 months,” Sally Auld told PM.
“If that number creeps above 50 per cent, then I think that would leave Australia in a reasonably vulnerable position.”