Weak Economy Looms as Key Election Issue
“Yesterday’s very weak GDP report sets the stage for an important economic debate as the election approaches. The headline result was weak; the details were even weaker,” writes Centre for Future Work Director Jim Stanford.
The ABS has released what is likely the last quarterly GDP report before a Commonwealth election expected in May. Coalition leaders were hoping a strong report would underline their standard talking points about being the best “economic managers.” But they were badly disappointed.
The headline number was bad: Just a 0.18% increase in GDP for the December quarter, barely above zero. But the details, if anything, were worse.
“GDP growth in 2018 was both slow and very lopsided, with profits growing three times faster than wages in the December quarter. And workers’ share of total GDP falling to its lowest level since the ABS started gathering this data,” writes Dr Stanford.
Dr Stanford also observes that despite growing profits, falling labour costs and tax cuts, business capital spending continues to shrink, and is lower as a share of GDP in the last two years than any time since the 1990s recession.
“This may be the most damning evidence against ‘trickle down’ economics,” writes Dr Stanford. “We need another engine for growth.”
“Australia’s economic growth in recent years has been fueled by three unsustainable factors: a property boom, rapid growth in consumer debt, and a spurt in resource exports (especially LNG) that has now leveled off. Those drivers are all shifting into reverse,” writes Dr Stanford.
More sustainable drivers of progress (including public and private investment, rising wages, and domestic demand) have been absent.
According to Dr Stanford, “These weak economic numbers should foster an important debate in the lead-up to the election: let’s get beyond slogans about who are the best ‘managers,’ and start to think big about building an economy that is sustainable and socially beneficial.”
Dr Stanford analyses the numbers in this briefing note.
Some of the major takeaways from the ABS report include:
- Real GDP per capita in Australia has now declined for two consecutive quarters: creating a so-called “per capita recession.” This is because the economy is growing more slowly than the population.
- Consumer spending was the weakest in five years, suppressed by weak wage growth, falling property prices, andhuge consumer debts.
- Net exports and housing investment both declined.
- Business capital spending was very weak, despite growing profits. This may be the most damning refutation of the logic of “trickle down” economics: despite strong profits and a favourable policy regime, business is failing to invest more in real projects.
- Workers’ share of the total GDP pie fell again in the December quarter — and for the 2018 calendar year, shrank to the lowest of any year since the ABS began reporting this data in 1959.
- A broad measure of wages (total labour compensation per worker) grew just 0.3% in the December quarter, and just 1.9% over the year as a whole. This indicates wage growth is slowing down, not picking up.