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Sunday, 25 February 2018

Gross domestic product


The economy went through a couple of soft patches after the financial crisis and after the mining construction boom finished.

But it is now picking up again.

Let's take a quick look at a few of the actual numbers from the national statistician.

Growth in the economy

Over the year to September 2017, Australia's real GDP grew by +2.8 per cent. 

It is not negative in per capita terms; and nor is the trend slowing (it's been quickening a bit lately). 

The Australian economy grew +0.6 per cent in the September quarter 2017 itself, seasonally adjusted, according to the figures released by the Australian Bureau of Statistics (ABS). 

17 out of the 20 industries recorded growth, driven by Professional, Scientific, & Technical Services, Healthcare & Social Assistance, and Manufacturing. 

The others didn't.

Engineering construction, having dropped sharply after the resources construction boom peaked, is now rising again.

Compensation of employees (COE) increased in all states and territories, resulting in a national quarterly growth of +1.2 per cent and growth of +3.0 per cent over the year since the September quarter 2016.

The ABS itself reported that: “The increase in wages was consistent with the stronger employment and hours worked data that has been reported in the labour force survey.”

At the household level, incomes have been soft, but are now gradually rising again. 

Real net national disposable income - arguably the one measure which best captures living standards, if rather reliant on commodity prices - grew by +4.5 per cent over the year. 

Global financial crisis fading

It is obviously the case that the economy went through a softer patch, often referred to as the 'global financial crisis' or 'GFC' for short. 

There was also a nasty following period where the Eurozone threatened to tear itself apart, which is still ongoing to a certain extent.

Australia's economy held up far better than most, but as a commodity exporter has hardly been immune from those global concerns. 

Here's the GDP growth chart, both in real terms, and in per capita terms. 

It's become quite popular to blame immigration for slower per capita growth since the financial crisis.

But on closer inspection the figures appear to show that immigration has by and large tracked the fortunes of the economy - huge through the mining boom, more muted as the economy slowed, and now picking up again as the outlook improves. 

Now don't get me wrong, the economy has been disappointing, and the recovery painfully slow at times.

The Reserve Bank put out a long speech last week to argue that financial stability risks from household indebtedness and mortgage stress, quote, 'remain low', but then has also apparently ruled out cutting interest rates due to, erm, financial stability concerns. 

Not sure what that's all about, but it is what it is. 

And, of course, GDP isn't a perfect measure of economic strength, or how households experience life, or indeed a lot of things. 

For example, Australia's humanitarian intake has been ramped up in recent times, and those extra persons are unlikely to contribute greatly to growth in the economy - at least initially - to them, safety, security, and establishing a new way of life is infinitely more important than what some national statistic or other says. 

Some people get ill, or lose a spouse or sibling, or spend a period unemployed, or inherit great wealth, or experience an amazing business success, or have an 'integrated transport plan' drilled right past their home, or whatever else. 

None of which is well captured by one national statistic. 

It's true that some people have done better than others, which is pretty much always the case. 

GDP cannot and does not attempt to measure all these things, but it is at least one measure of output and productivity. 

Outlook brightening

Looking forward, in 2018/19 the economy is forecast to grow by 3¼ per cent.

And in 2019/20 the economy is forecast to grow by 3¼ per cent as well. 

Population growth is tracking at about +1.6 per cent, so if that's achieved it will comfortably see per capita GDP rising to fresh heights. 

So, there we have it, just a few facts and figures for a Sunday night!