Earlier this year, Australia notched up its 26th year without experiencing a technical recession, defined as two consecutive quarters of negative real GDP growth.
While there are some disputes as to whether this is the longest stretch of uninterrupted economic growth for a developed economy, it’s still been a remarkable run given the turbulence seen in the global economy over that period.
Think the Asian currency crisis of the late 1990s. The Global financial crisis in 2008 and 2009, and, following on from that, the Eurozone debt crisis.
Through all of those events, Australia has managed to avoid the economic downturns seen in other major developed nations.
Just look at the chart below from ANZ showing Australia’s GDP growth performance going back to when the last recession occurred in mid-1991.
To the outsider, it’s been a phenomenal and envious run.
But has it really been that spectacular? Is Australia really the poster child for how an economy should be run as countless Australian politicians have spruiked over the years?
Previous financial market and industrial relation reforms have undoubtedly helped, providing a buffer to economic shocks that have come Australia’s way. And China’s emergence as a economic superpower has also played a role, with its insatiable demand for commodities helping to boost Australia’s terms of trade and economic growth through higher commodity exports and mining sector investment.
However, another factor, has also worked in Australia’s favour, especially in the years following the global financial crisis: Australia’s strong levels of population growth, particularly its immigration levels.
According to data released by the Australian Bureau of Statistics (ABS) last month, Australia’s population stood at 24.512 million as at the end of March this year, leaving the increase since 1990 — just before Australia’s last recession in 1991 — at 40%.
When growth is measured in volume terms, a fast growing population undoubtedly helps. More people means more demand, helping to underpin real GDP growth.
Perhaps a more reliable indicator on true economic performance is real GDP growth per capita, or growth in output per person.
As seen in this next chart, also from ANZ, on that measure of economic success Australia’s growth record doesn’t look anywhere near as stellar.
The orange line shows Australia’s annual real GDP growth rate going back to 1990. The blue line shows read GDP growth per capita over the same period.
In per capita terms, real GDP growth hasn’t been all that spectacular, especially over the past decade, with the gap between the two lines widening substantially compared to periods in the past.
As David Plank and Jack Chambers, economists at ANZ point out, this suggests that growth in recent years has largely been as a result of population growth rather than productivity improvements.
“Australia’s claim to a record run of growth looks less robust once population growth is taken into account,” the pair wrote in a note released earlier this week.
“What immediately jumps out are the fall in per capita GDP in 2008–09 and the very weak performance in recent years.”
Indeed, as the chart reveals, had it not been for population growth, Australia’s economy would have fallen into recession during the global financial crisis.
And while other developed nation’s have also seen their population increase over the past 26 years, as Plank and Chambers point out, Australia has had more rapid population growth than most other developed economies, especially over the past decade or so.
Nothing demonstrates just how much Australia has benefited from strong population growth in the post-GFC era than this next chart from ANZ.
It shows average annual real GDP growth since 2011 for a variety of major developed economies, comparing the results on a broader per capita basis.
As a whole, Australia is second only to New Zealand in terms of real GDP growth, far outpacing the averages seen in the US, UK, Canada and Japan over this period. However, on a per capita basis, Australian economic growth hasn’t been all that impressive, lagging the likes of the US, UK and New Zealand as those economies rebounded after falling into recession.
Indeed, although slightly higher than the levels seen in Canada, real GDP growth per capita in Australia has been akin to the levels seen in Japan over the past six years.
“Over longer time frames, Australia’s relative per capita performance looks better, though still much closer to other countries than implied by looking only at aggregate GDP growth,” says Plank and Chambers. “But it is the recent performance we are most interested in and here Australia is not doing all that well.”
Not doing all that well.
That point is confirmed by changes in net national disposable income per capita since the GFC, something that is described by the ABS as a broader measure of change in national economic well-being.
It measures changes in income levels to Australians on a per-capita basis, reflecting shifts in profits and wages. It’s been flat lining over the past decade, even with an uptick in recent years thanks to higher company profits.
Despite continued growth in output over this period, income levels have not followed suit.
So, where does that leave Australia?
From a headline GDP growth perspective, it looks like the economy is doing well. However, on a per capita basis, it suggests that things are not all that rosy, relying increasingly on being bigger rather than better at what the economy produces.
Plank and Chambers think that if Australia’s economic prosperity is to match or exceed growth in real GDP, productivity — being more efficient at what Australia does — will need to improve.
“It would be unfair to say that the importance of productivity growth is not appreciated by the policy makers,” they say.
Indeed, the Productivity Commission has today outlined a range of policy options to lift our productivity performance, with the first in a series of five-yearly reviews. But reports such as these have gained little traction in recent years.
“Perhaps recasting Australia’s growth record in per capita terms might refocus attention on our need to lift productivity growth.”
More action rather than reports, in other words, focusing on what can be done now to improve efficiency to allow prosperity to flourish in the future.
However, that usually means making hard decisions, meaning that long-term benefits are often overlook in order to achieve short-term political survival.
It’s a phenomenon that seems to have only grown in the years since the global financial crisis, with successive governments trying merely to survive short-term rather than govern for the long-term.
Given the recent track record, that tactic is not working for either of Australia’s major political parties.
Something has to give if Australia’s economic prosperity is to improve.
Few will disagree that productivity improvements, or being more efficient, usually leads to a lift in living standards, boosting output from the same amount of input, lowering prices, increasing profitability and worker incomes, along with a raft of social benefits.
Essentially, getting more benefit from the same amount of work. Who wouldn’t want that?
One suspects that such an outcome, should it be delivered, would do no harm in enhancing ones reelection chances either.
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