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Growth Numbers Conceal a Fragile Economy

To most readers here, it should come as no surprise that the average Australian did not share in the current economic growth the nation experienced over the year to March 2016.

Real GDP increased by 1.1 per cent in the March quarter after recording a 0.6 per cent increase in the September 2015 quarter. This brings the annual growth rate to 3.1 per cent, a number that won’t stop unemployment from rising.

Malcolm Turnbull and Scott Morrison will be breathing a sigh of relief on the back these numbers but both know their policies have nothing to do with it.

Coming just weeks before a federal election, one would think this can’t hurt the Coalition’s chances, but when the average Australian realises that his/her share of this growth was close to zero, that type of thinking might be premature.

Real net national disposable income, a broader measure of national economic well-being, rose by 0.2 per cent for the quarter but fell by 1.3 per cent for the 12 months to the March-quarter 2016. That means that Australians are worse off (on average) than they were 12 months ago.

This is the income recession that economists are now speaking about. The good quarterly growth result was largely due to an unexpected spike in exports and a drop in imports. The drop in imports results from a drop in local household consumption. That’s where bells should be ringing.

The much touted transitioning of our economy will not be an overnight thing. It will take as much as a generation to replace the mining construction boom. But more importantly, the production and export phase now in play, is hamstrung by a collapse of world prices and a chronic oversupply.

Don’t expect this to improve anytime soon. While we export large quantities of minerals to feed emerging economies, those quantities are not sustainable. That will become evident in the next few quarters.

Western households have reduced their consumption, which means the emerging economies that supply much of that consumption will start cutting back production. That will translate to a lowering of our exports to them.

untitled But the real problem now, is that flat wages are straining households who are using credit to sustain consumption expenditure. That is a highly fragile position to be in. Herein lies the danger. Flat wages and declining household spending will impact on small business. This will mean more closures and fewer start-ups.

The end result will mean higher unemployment. As a nation, we are too reliant on exports when we are quite capable of repairing and growing our domestic economy by creating local infrastructure projects.

With business too timid to invest, it means government needs to step in and show the way. The present government won’t do that beyond token gestures. They will sit on their hands content to wait for business to do the job for them. It’s not ignorance, but a flawed ideology, that holds them back.

A Coalition win on July 2nd will mean more of the same.


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  1. Arthur Plottier

    If we plot a graph with the GDP and GPI data we will be able to see that the GPI line is keep going down and I cannot see when it will improve.

  2. nexusxyz

    The economy is screwed. Once a downturn starts all hell will break lose as a massive amount of debt will unwind.

  3. King1394

    Gross Domestic Product as a measure of economic wellbeing has been queried many times. When you realise that it is based only on monetary exchange, you can see how useless it is. The classic examples are the tree growing in the forest has no value but the tree cut down and chipped is worth the value of the woodchip. Likewise the normal exchanges that help us as families and communities are not valued unless money changes hands.

  4. SGB

    Thanks for that John,
    I have said something similar to those on Facebook who, jumped on these figures to attack Labor.

    Unfortunately I am not as articulate as you!

  5. Anomander

    GDP is one of the worst possible indicators of performance because it excludes any number of drivers, factors and externalities.

    For example, the value of coal and iron ore is at rock bottom prices, which is affecting the current account deficit. But in GDP terms this doesn’t matter – all that matters is the quantity we are exporting.

    Similarly, major disasters like cyclones or bushfires actually adds to GDP because they create expenditure as things get rebuilt. But GDP fails to account for the lost productivity and damage to people’s lives.

  6. diannaart

    … and Bill Shorten not really across the whole transition from mining thing:

    A number of Labor MPs and candidates have signed a petition calling for the diesel fuel rebate for mining companies to be restricted.

    It costs the federal budget around $2 billion a year but Mr Shorten said it’s here to stay.

    He said he’s not too worried about dissent within the ranks: “I lead our party, and I won’t have some sort of giant witch hunt that every individual has to agree with me. But the truth of the matter is when it comes to diesel fuel rebate, our policy is the one I just articulated.”

    Mr Shorten today announced a Labor government would spend $100 million to help communities develop renewable projects like wind farms and rooftop solar panels.

  7. SGB

    I also have a forefinger that can’t spell ?

  8. kerri

    Just discussing this with hubby, whose plastic (overseas production) importing business suffered at the beginning of the GFC from the high Aus dollar. He sold off what stock he had but gave up and closed the business taking a job with someone else in an entirely different business (within aus). He is now retired.
    Years ago I opened an account with a US buying firm. Part of a deal with a favoured credit card gave me the “suite” at no annual fee. All managed online of course. If we want goods from the US, regardless of number of items and making use of free shipping within the US we send it to my suite. There it is held until we have enough goods in storage or need said items when I put in a request and the whole kit and kaboodle is stripped of excess packaging, bundled into the smallest possible parcel and sent via a courier of my choice to my home address. Neat! Works well! They will even shop for you for the princely sum of US$10 if the retailer of choice does not allow overseas purchases. Hell I even had an artwork sent from Italy to my suite and forwarded to home. Haven’t hung it yet. Whilst our dollar has been high it has been bliss! Great quality stuff you can’t get here sent to home for less than it would cost sent direct! However now we are becoming well aware of the dollar’s drop and are fighting to educate the 20 something daughters to the new situation where a $10 collectible costs $27 in postage via the forwarding service. Like you have said John, but for different reasons, we are buying way less overseas stuff as the imports are just too expensive!
    Disclaimer. We are all mad skiers so ski gear from the US, where people live in the snow every winter, was always waaaay cheaper than stuff bought here where skiing is regarded as a luxury sport! Today? Given Aldi, Skiman Bob and every other department store selling cheap ski gear, it is well affordable. We no longer buy so much. Plus the kids have stopped growing and their old gear is heading for a philanthropic campaign by XTM to hand out old ski gear to the homeless.
    Yes! Our situation can hardly be unique! Commercial importing must also be more expensive hence lower figures. Besides it beggars belief for Scott and Malcolm to claim good management having yet wiped the moisture from behind their ears?

  9. Pingback: Growth Numbers Conceal a Fragile Economy | THE VIEW FROM MY GARDEN

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