We live in strange economic times. In the three months to September, Australia’s economy shrank 1.9% – the third-biggest quarterly fall ever – and yet it felt rather underwhelming, and if anything a bit of good news.
In the run up to the release of the gross domestic product figures, economists were predicting a fall as large as 3.1% in the September quarter, so when the bureau of statistics revealed it was “just” a 1.9% fall, it didn’t seem all too bad:
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Compared to 12 months ago, the economy is about 3.9% bigger, which is well above the long-term average and also an indicator of how weird things are at the moment – on one measure things are horrific, and on another they’re booming.
It’s a reminder that how we measure the economy is not just reliant on what we count but the period over which it is counted.
If we only care about three-month chunks, then these latest figures show the economy has collapsed and is now some 4% below where we should be given the long-term trend:
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But if we count GDP as how much Australia produces in a 12-month period, then in the past three months our economy actually grew – albeit just 1% - and it continues to slowly recover to the long-term trend level:
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This shows that when times are crazy, it’s best to look at things from a number of angles and make use of as much perceptive as you can.
For example, on Wednesday in parliament’s question time the debate between Labor and the Coalition was over how Australia was performing compared to the rest of the OECD countries.
Labor was quite rightly pointing out that Australia had the worst growth in the September quarter across the OECD. But the treasurer countered that compared to pre-pandemic levels, Australia was doing better than most G7 nations (if only about the middle of the OECD on this measure):
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So what was the cause of the fall in GDP? Well, you don’t need to be much of an economist to know – the lockdowns in New South Wales, Victoria and the ACT:
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So massive was the impact of the lockdowns that the collapse of household consumption in NSW, Victoria and the ACT alone reduced national GDP by 2.7 percentage points, while the same spending in all other states increased it by 0.2 percentage points:
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As it turned out, the drop in household spending also helped GDP because the biggest contributor to GDP growth in the September quarter was the fall in imports – down 4%. Because imports are in effect money leaving the economy, when imports fall, our GDP grows.
The collapse in household spending also caused the second-biggest rise in our savings ratio – up from 11.8% in Jun to now 19.8%. When you can’t go to the shops, or go on holidays, you save more:
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The other big driver was government spending. Were it not for government spending and investment, GDP would have fallen 2.8% in the quarter rather than 1.9%. Similarly almost half of all the economic growth over the past year has come from the public sector:
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This is also the case for household incomes. In the September quarter, real household disposable income per capita rose 4.2%, and 60% of that came via the rise in social benefits amid the lockdowns:
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One area of government support that does appear to be easing is that for the residential construction sector. Certainly the lockdowns have had an impact, but over the past six months dwelling construction, and alterations and additions to houses, have declined from the peak of the homebuilder period:
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And so we now look ahead.
The December quarter will likely experience a surge of household spending in the south-eastern states, but also a drop in government support.
It means in three months’ time in March (perhaps just before an election) we will likely see another near-record GDP growth figure, and no doubt the government will be upbeat.
But we will again have to wait to see the true health of the economy, when we finally get to a point when for an ongoing period lockdowns and virus restrictions are not creating weird and somewhat unreal figures.
