Recession by the numbers: what it means for you and the future

Do you feel your living standards have dropped this year because of surging household costs? New GDP figures help explain why.

Thirty-three years ago Paul Keating introduced “the recession we had to have”. Today Australia is having a recession that’s not strictly a recession.

Wednesday’s official GDP figures show our economy grew 0.4 per cent in the June quarter, following an identical 0.4 per cent rise in the March quarter.

The generally-accepted definition of a recession is two quarters – six months – of falling GDP, and by that measure Australia’s economy is keeping its head above recession waters.

However, the latest GDP numbers show we are in what economists call a “per capita recession” – with the economy now shrinking per head of population. GDP per capita has fallen 0.3 per cent for each of the past two quarters.

A key factor keeping us from a full-blown recession was the 350,000-person boost in net migration last financial year that brought in piles of new people buying goods and services.

Mr Keating’s famous recession quote came in November 1990, when he was Treasurer, amid a year-long recession that started in the September quarter of 1990. Like today, it followed a high Reserve Bank interest rate – which started 1990 above 17 per cent but was back to 5.75 per cent by late 1992.

On Tuesday the Reserve Bank kept its official interest rate on hold at 4.1 per cent, just one quarter of those 1990s levels but having a big impact today because of the huge surge in home values and loan sizes over the past three decades.

Going down: population growth is the only thing keeping Australia out of recession. Picture: iStock

The GDP numbers show household spending has virtually stopped in the past six months, growing by just 0.1 per cent in the March quarter despite the population boom. People struggling with high mortgages and other living costs are also dipping into their cash reserves, with household savings as a proportion of income falling to its lowest level since 2008 amid the global financial crisis.

This “recession” is a weird one, because not everyone is doing it tough, and unemployment remains low. Homeowners who don’t have mortgages and instead have cash savings have benefited from rising rates and their positive impact on their deposits, while renters and borrowers are struggling.

Key economists believe the RBA is unlikely to raise interest rates again, and instead will start cutting them before mid-2024 – a light on the horizon for struggling businesses and households.

CommSec chief economist Craig James said even if Australia did not suffer an official recession, it would feel like a recession in sectors such as low-value retailing, manufacturing and financial services.

AMP chief economist Shane Oliver said Australia could experience rolling recessions in different sectors of the economy, as they contracted at different times. “In Australia, home building and retailing have been in recession for a while and conceivably could start to recover as consumer spending on services top out,” he said.

Dr Oliver said strong population growth masked the per capita – or per person – recession. “What matters for living standards is per capita GDP growth, but arguably for investors overall growth is more important as this is what will drive company profits.”

BetaShares chief economist David Bassanese said he believed the RBA’s rate rises were over, and it would cut its cash rate three times in 2024 – the first in April.

If that happens, household and business financial pain will subside and we may well avoid an official recession, keeping our tally of the past 32 years to just one. And that one was Covid, which no country could escape.

Originally published as Recession by the numbers: what it means for you and the future