Look at the graph below which charts Australia’s GDP growth rate both on an annual (the black line) and quarterly basis (the green columns). Should one be worried?
Not really, if one reads the statement of the Chief Economist of the Australian Bureau of Statistics (ABS). In the media release accompanying the latest quarterly GDP figures, the Chief Economist of the ABS is cited as saying: “The economy continues to grow as we head towards twenty-eight years of sustained growth” but acknowledges that it is below the long-term growth rate of 3.5%. If the quarterly trends persist, then one can expect the annual growth rate for 2019 to be 1.8% – which is barely above the population growth rate of 1.6%
What the Chief Economist of the ABS does not acknowledge is that for three consecutive quarters, the GDP growth rate has been below the population growth rate. Hence, Australia has been in a ‘per capita recession’ in recent quarters, as leading economists and analysts have often pointed out. There is a danger that the economy might tip into a ‘real recession’ with an actual decline in overall GDP for two consecutive quarters. While the Reserve Bank has dropped the policy rate to a historic low (1.25%), there is likely to be limited stimulus from monetary policy, as the Reserve Bank Governor himself acknowledged. As he put it: ‘There are certain downsides from relying just on monetary policy and there are limitations on what, realistically, can be achieved. So, as a country, we should also be looking at other options …One option is for fiscal support’.
One needs fiscal stimulus in the form of enhanced government expenditure, especially on infrastructure. Relying on tax cuts is unlikely to be enough as an evaluation of the latest US experience shows. Alas, the Australian government is trapped in the language of accumulating fiscal surpluses as the primary metric of good economic management.