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How this GDP per capita recession compares to history

GDP was 0.3% for the September quarter and while headlines highlight that this is 0.1% below expectations, the true story is that this was Australia’s seventh[1] consecutive quarter of negative GDP per capita growth.

This is the longest period of consecutive negative GDP per capita growth since records started in June 1973. Since that time, Australia has only recorded one other period of more than two consecutive negative quarters, and that was four negative quarters from September 1982 to June 1983.

Immigration: continuing the GDP free kick, but for how long?

A major flaw in the GDP measure that especially affects Australia is the free kick provided by population growth, which, in Australia’s case, means immigration.

Looking back 50 years to 1973 (when the per-capita series starts), population growth has provided nearly 50% of the GDP growth, with GDP growing at a 2.9% compound average rate, compared to GDP per capita, which has averaged 1.5%.

GDP per capita has had double the negative quarters

Table 1 shows a similar pattern regarding the number of negative quarters and recessions (defined as two consecutive quarters or negative growth). Since September 1973, GDP per capita has registered 56 negative quarters compared to GDP, which recorded only 26. Similarly, GDP has recorded only eight consecutive negative quarters compared to 19 for GDP per capita.

Table 1: Population growth has delivered almost half the total GDP growth

Source: ABS, Venn Brown

Immigration is the magic lever to which governments (of all colours) have become addicted in order to boost GDP (and housing prices). If GDP looks to be slowing, just let a few hundred thousand more people into the country and watch the GDP grow.

There has been some speculation that the growing discontent with the ongoing housing crisis and cost of living pressures might see the end or at least the easing of this policy.

However, no politician wants to be the one that ushers in a GDP-measured recession or, worse still, a meaningful decline in house prices. As such, we don’t see a major change in immigration in the near term.

Figure 1: Population growth is responsible for almost half the total GDP growth

Source: ABS, Venn Brown

While all the talk is on the cost of living and inflationary pressures, it’s worth noting that while the government has been proudly reporting unbroken economic growth, GDP has been negative for eight of the last nine quarters on a per capita basis.

As mentioned above, this is only the second time since June 1973 that there have been more than two consecutive quarters of contraction; the other lasted four quarters from September 1982 to June 1983.

Figure 2: GDP per capita has been negative for just eight of the last nine quarters

Source: ABS, Venn Brown

Figure 3 below shows the cumulative number of negative quarters of GDP and GDP per capita, highlighting the separation of the two measures as immigration increased in the early 90s and gained real speed over the last three years.

Figure 3: GDP per capita has been negative for just eight of the last nine quarters

Source: ABS, Venn Brown

The 1990/91 recession was shorter but far more intense

An interesting reference for the current period is the 1990/91 recession (see Figure 4), during which per capita GDP was negative for six of nine quarters, compared to GDP, which was negative for four of the nine.

That’s not to say we’re even close to a similar economic downturn. Back in 1990/91, there were three key differences to our current environment, the most important of which is unemployment:

  1. Unemployment: Seasonally adjusted unemployment peaked at 11.2% in December 1992, compared to today’s persistent, near-record low of 4.1% in October (albeit up from 3.5% in October – December 2022). See Figure 5;
  2. Negative GDP: Actual GDP was negative for three quarters, bottoming with a -1.3% contraction in March 1991; and
  3. Magnitude: At the bottom, the magnitude of the negative GDP per capita was double to triple the current levels.

Figure 4: 1990/91 recession had six out of nine negative quarters of per capita GDP

Source: ABS, Venn Brown

Unemployment remains the key factor to watch

While seasonally adjusted unemployment is up 0.7 percentage points from its low of 3.5% in December 2022, it remains near record lows and less than half the rate that resulted from the 1991/1992 recession.

Unemployment and credit defaults remain the key indicators to watch as GDP continues to slow, interest rates remain moderate, and inflation continues to add to cost of living pressures.

Figure 5: Unemployment in 1991 – 1994 was very different to current rates

Source: ABS, Venn Brown


[1] GDP per capita for the March 2023 quarter was revised down from 0% to -0.1% in the September release.

 

Andrew Wilkinson is the Managing Director of Venn Brown, a special issuer sponsored equity research company.

 

6 Comments
JB
December 20, 2024

Why everyone complains but nobody can see the elephant in the room? 26% of Australians work in the government or semi-government sector! Overgrown beurocracy, miriad of rules and regulations otherwise called the red tape has been suffocating Australian small business and depriving enterprenurial individuals of their chance of success and their dreams for decades. Add to that monopolies, duopolies and oligopolies deep rooted in the economic system due to government complicency and corruption. They long destroyed healthy competition being a sole guarantor of rising standards of living. Lack of competition extends to the political arena where no matter who you vote for, they are the guardians of the system that benefits them but not the public. It is time, Australians to wake up and Fight Back for a real change!

Steve
December 16, 2024

Whats the old saying, in a democracy you get the government you deserve. I think there are two simplistic options, either excessive demand is taken out by some people losing their jobs while the rest get a good pay rise (the 70's) or the pain is shared, everyone who wants a job can get one but the pay rises are lower. The second option may be fairer (morally) but it alienates more voters; voters are largely amoral when it comes to home economics. We seem to have lost touch with the reality that to pay our way someone, somewhere needs to make or produce something that someone else will pay for. If we want to import cars, TV's, mobile phones etc (none of which we make here) we need to sell something to produce the cash to pay for the goodies. The devil in the detail is we need to actually be competitive with alternative suppliers of said goods/services which is where productivity enters the conversation. When our productivity declines (ie cost/unit produced goes up) we lose some business and the economy shrinks a bit. Unfortunately the Labor govt don't get this connection and would love to stop selling dirty coal/gas/iron ore/gold/live sheep etc but then won't have the taxes to pay for the luxuries only a first world country can afford like the NDIS etc (or even basic like decent hospitals). So long as most jobs "created" are either direct public servants or indirect service providers paid by the govt we are in for a hard landing one day. Did someone mention Argentina?

Jeff Oughton
December 16, 2024

What's Australia's national objectives?
What's the Government's and business promise(s) to Australians?
It's not solely, simply GDP...GDP per capita...flows of income/production.....and population/ employment.....incomes/profits/dividends...after inflation

It's should be about - broader measures of wealth - viz including human capital (education and health), natural capital (mineral resources, renewable resources, ecosystems, water) and social capital (good governance, civic-mindedness).

And without the right objectives & good governance from both government and business, Australian well being fall's well short of its potential.....indeed, in real terms, living and well being may well continue to decline in real terms

Trevor
December 15, 2024

Australia suffers from bad government. I understand that’s largely what caused Argentina to go from being a rich country to a poor country.

Now we’ve got an election coming up with one side seemingly believing that a modern economy like Australia can run on intermittent renewable energy and the other side going to the other extreme of nuclear. Both policies aimed at reaching net zero in the name of climate alarmism.

If we end up with a minority labor government in coalition with the greens then we’ll really be up the creek.

I’m not saying the liberals are much good either. They really let us down closing the economy and then running up the debt during covid. And they’re supposed to be the good economic managers.

Jess
December 15, 2024

Job creation was driven by government spending, so take that out and immigration, and you will have a much clearer story of the real experience in our economy. What's disappointing is how easily the numbers are manipulated.

Paul R
December 13, 2024

When housing is 4x bigger than the economy, and there's almost zero real value added in it from an economic point of view, it's hardly surprising that GDP is suffering.

Shrink housing and get investment to flow to the right growth areas. Just don't ask our politicians because they simply don't understand.

 

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