The Australian economy continues to grind out growth, registering a modest expansion in economic activity in the first three months of 2017.
It took Australia’s run without experiencing a technical recession — loosely defined as two consecutive quarters of negative GDP growth — to 103 quarters, equaling the record, held by the Netherlands, for a developed nation that has not suffered an economic downturn.
While there is a constant debate surrounding what exactly a recession is – and even some doubts whether the Netherlands record is even accurate – it’s an impressive achievement, particularly given some of the turbulent economic times we’ve seen since Australia’s last recession in the mid-1990s.
Just look at the chart above — an amazing run.
Or is it?
While today’s record has created a talking point, the reality is that it’s not that amazing.
For all the adulation about floating the Australian dollar and industrial relations reforms — factors that are often rolled out to explain Australia’s good fortune — the truth is that there has been another driving force that has propelled the economy ever larger.
It’s been enormous over the past 26 years, a more than handy outcome when real GDP in measured in volumes.
When Australia was last in recession, our population stood at 17.284 million, according to the ABS. At the end of the September quarter 2016, that figure had swelled to 24.22 million.
A massive increase of 6.94 million, or 40.1%.
That’s a lot more demand, and a major factor in delivering 103 quarters without recession.
The impact of population growth on GDP is shown in the chart below. It shows real GDP over the past 26 years, only instead of measuring domestic output as a whole, it looks at growth in per capita terms — what each Australian produced.
It’s not nearly as impressive as the chart above.
There’s been plenty of negative growth quarters, and in many instances the increases, in per capita terms, have been significantly smaller than those in total GDP.
According to the ABS, per capita real GDP fell by 0.15% last quarter, leaving the increase on a year earlier at just 0.2%.
As seen in the chart below, that significantly underperformed what was recorded in real GDP, both on a quarterly and annual basis.
Population growth, as it has done in the past, helped to bolster economic activity during the quarter.
And that goes someway to answering why it’s been so long since Australia has been in recession.
“It’s a record that has been much easier for Australia to obtain given strong population growth which boosts potential GDP growth,” say Gareth Aird, senior economist at the Commonwealth Bank. “It’s akin to running a race with a tailwind.”
Yes, past reforms have made a difference, as has the emergence of China as a global economic superpower, but they’ve not been the only factors, particularly in recent times.
With population growth now playing a significantly greater role in powering economic growth, helping to mask a slowdown in productivity per worker, Aird says that policymakers must takes steps to address the current trend.
“GDP per capita is a better measure of the household lived experience, and today’s GDP figures put per capita growth at just 0.2% through the year,” he says. “This is a sobering figure.”
“Policymakers should focus on reforms that boost productivity growth and raise living standards rather than measures designed to simply inflate headline GDP.”
Time to do something other than boost population growth, in other words.
It’s unlikely that Australians will holding on with bated breath for that to happen.