Home Business Economy Did Australia just enter a recession?

Did Australia just enter a recession?

"It is on a knife-edge this economy"

Jack Derwin

Digital Journalist, Your Money

Despite celebrating strong employment figures, the government’s release of GDP figures today has confirmed Australia has entered a “per-capita recession”.

GDP or gross domestic product refers to how a country’s economy is faring by measuring the total value of good and services produced within it.

On a per-capita basis, Australia recorded two consecutive quarters of negative GDP growth – the technical definition of a recession- shrinking 0.1 per cent and 0.2 per cent in the September and December quarters respectively.

What the government says

Releasing the figures publicly, Treasurer Josh Frydenberg said the country experienced a “moderation in growth” in the second half of last year.

“The moderation in part reflects the impact of the drought, lower mining investment and as we continue to move from the construction to the production phase as well as a decline in residential construction from record levels,” he explained.

However, despite negative per capita figures, overall the economy is still growing and unemployment remains low, Frydenberg said.

“The Australian economy grew by 2.8 per cent in the 2018 calendar year which is consistent with trend growth. Australia continues to grow faster than any G7 nation except the United States,” he explained.

“The unemployment level has fallen to five per cent, its lowest in seven years, and to a remarkable 3.9 per cent in our largest state New South Wales, a level that hasn’t been seen since the 1970s,” he added.

What the opposition says

Interestingly, the per-capita recession comes as the Coalition has ramped up its pre-election criticism of Labor and its economic policies.

The Federal Opposition took the opportunity to hit back on Wednesday, with shadow treasurer Chris Bowen labelling the data as a “damning indictment” stemming from “a quarter of failures”.

“The simple calm fact of the matter is that there is a per-capita recession on today, on their watch,” Bowen said.

“On head of population, the Australian economy is going backwards, it is the first time this has happened since 2006… [and] only the third time it has happened since 1991,” he explained.

Bowen was also quick to hose down the employment figures, pointing out that strong wages growth had not followed. 

“What we’re seeing is that wages are not growing strong enough, that productivity is not growing again…what we see is that profits continue to grow but wages simply do not.”

Read: Why Australia is still waiting for that pay rise

What it all means

Overall, it was a negative result, UTS Business School professor Warren Hogan told Trading Day.

“It’s a soft number there’s no doubt about it,” he said. “We have got 1 per cent annualised growth in the second half of last year [and] our potential is 2.5 per cent at least, if not 2.75. It’s a disastrous rate of growth for an economy that needs to still be producing jobs.”

However, given the economy is going through adjustments, the GDP figures should be taken with a grain of salt.

“The reality is that this economy can be patchy quarter-to-quarter,” he said.

It also doesn’t mean that an actual Australian recession is imminent, with the economy having recorded per-capita ones in 2006 and 2001 previously without disrupting almost three-decades of recession-free growth.

It does, however, mark slowing growth across the Australian economy, as wages remain relatively flat, consumption is soft, residential construction is slowing, property prices fall in major capital city markets and a growing number of economists are calling for two interest rate cuts this year.

If the Reserve Bank of Australia (RBA) was to cut interest rates however it might not be enough to prevent an Australian recession if one is coming.

“When it comes to issues of recession, we are [relying on fiscal stimulus] because we have a cash rate of 1.5 and we have maybe a percentage point, a percentage point and a half of cuts,” Hogan explained.

Read: What is the RBA and how does it decide interest rates?

“It is on a knife-edge this economy. It’s not clear which way we’re going in 2019 and I don’t think this data from what we can tell so far tells us either.”

Watch Professor Warren Hogan’s comments in full in the video above. 

Read more: Why the housing slump won’t derail the economy
More: Why interest rate cuts won’t save the property market
More: Does this chart show we’re headed for a recession?

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