Australia fell into a per capita recession late last year - there's a risk it continued in early 2019

Walt Disney Pictures / Silver Screen Partners III / Doric Productions / IMDbRick Moranis in ‘Honey I shrunk the kids’
  • Australian economic growth slowed rapidly in the second half of 2018.
  • GDP expanded 0.2% in Q4 after a 0.3% increase in Q3. With population growing around 0.4%, that saw Australia fall into a hypothetical “per capita recession” for the first time since the mid-2000s.
  • A per capita recession refers to output per person declining for two consecutive quarters.
  • In the March quarter national accounts released next Wednesday, the median economist forecast offered to Thomson Reuters looks for a quarterly increase of 0.5%. Several believe quarterly growth will be significantly weaker, implying the per capita recession may continue.
  • Annual growth is tipped to slow to 1.8%, a result that would be the weakest since the GFC.
  • Further GDP inputs will be released early next week. They carry to potential to shift expectations for economic growth dramatically.

Australian economic growth slowed rapidly in the second half of 2018, expanding at an annualised pace of around 1%, well below the near-4% pace seen in the first half of the year.

In the December quarter, the economy grew by just 0.2%. That followed a 0.3% increase in the three months to September.

With population estimated to be growing at 0.4% per quarter, that saw Australia fall into a hypothetical “per capita recession” for the first time since the mid-2000s.

Put simply, output per person declined for two consecutive quarters.

According to economists, there’s a risk that Australia’s per capita recession extended into the first quarter of 2019.

Of the 15 polled by Thomson Reuters, the median economist forecast looks for a quarterly increase in GDP of 0.5%, seeing growth over the past year slow to 1.8% without revisions to prior data.

If that annual rate is confirmed when the national accounts are released, it would mark the slowest expansion since the GFC.

However, while the median economist forecast looks for quarterly growth of 0.5%, several individual forecasters expect a far weaker result.

Macquarie Bank and TD Securities tip growth of just 0.2%. Morgan Stanley and BetaShares are only slightly more optimistic, predicting an expansion of 0.3%.

If they’re correct, Australia’s per capita recession will have extended into early 2019.

The most optimistic forecast offered to Thomson Reuters looks for a quarterly increase of just 0.6%, indicating that if growth does rebound, it’s only likely to be modest in scale, partially reflecting that all the GDP inputs already received has been universally weak.

While that’s what economists are expecting now, those view could change early next week when the last of Australia’s GDP inputs are released ahead of the national accounts on Wednesday.

On Monday, the Q1 business indicators will be released, including business inventories which feeds into the expenditure measure of GDP. That will be followed by the final pieces of the GDP jigsaw puzzle on Tuesday with the release of net exports and government demand.

All three are large GDP components, carrying the ability to alter growth expectations dramatically.

Adding additional uncertainty, the largest component of the Australian economy — household consumption — won’t be known until the actual GDP report is released.

This component makes all other GDP inputs look small, accounting for just under 60% of the economy. Retail sales volumes, accounting for around 30% of household consumption, actually went backwards in the March quarter. The big question is whether that weakness extended to services consumption.

We’ll find out the answer to that question at 11.30am AEST on Wednesday.

NOW READ: Australian economic growth slows, enters per capita recession

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