GDP numbers tell a turnaround story, but not the whole story

Wednesday’s improving GDP numbers will be spruiked by Labor in the looming election campaign, but they mask a darker truth.

Officially, Australia’s economy has grown 1.3 per cent in the past year after our December quarter GDP jumped a slightly stronger-than-expected 0.6 per cent.

But for millions of households suffering from high interest rates, rents and grocery costs, the hundreds of thousands of business owners experiencing worse conditions than Covid, and tens of thousands of businesses that have collapsed, it feels anything but strong.

It’s good news that our economy has bounced back from its worst annual growth reading since 1992 (excluding the pandemic) but these headline gross domestic product numbers don’t tell the full truth.

They do not show per capita growth, which is how much the economy is improving per head of population, and on that measure we are still going backwards annually.

Our economic growth of 1.3 per cent was largely the result of a fast-growing population, with hundreds of thousands of new migrants the only reason why there was no official recession.

Painful times may still be ahead for the Aussie economy. Picture: iStock

The Australian Bureau of Statistics report notes that annual per capita GDP growth was negative 0.7 per cent for calendar 2024.

“Quarterly growth in GDP per capita was 0.1 per cent following seven consecutive quarters of declines,” it says, which means that most of the 0.6 per cent December quarter GDP jump came from a booming population.

While it’s great to finally be growing again – albeit slightly – on a per capita basis, there are some concerns that it may be short-lived amid a cloudy economic, political and global outlook.

The initial response of economists and analysts to Wednesday’s GDP numbers was generally lukewarm.

BetaShares chief economist David Bassanese said the Aussie economy “remains stuck in the slow lane, thanks to high interest rates bearing down on private demand”.

Deloitte Access Economics partner Stephen Smith said the worst of the economic slowdown had passed, and he forecast 1.6 per cent growth this year then higher growth in 2026 and 2027.

“Alongside migration, growth in 2024 was propped up by government spending, which is still running at a near record share of GDP,” he said.

“Unless more is done to encourage private sector growth and investment, there’s limited upside to the economic turnaround.”

AMP economist My Bui said the picture was fragile, “with government contributing to most of the growth” and global trade war tensions creating downside risks for the economy later this year, while KPMG chief economist Brendan Rynne warned the “escalating global trade war” had the potential to disrupt momentum.

VanEck Senior Portfolio Manager Cameron McCormack said our economic growth rate was still the slowest since 1992, excluding the pandemic, and he questioned whether it was sustainable.

“Australia’s vulnerability to global trade tariffs and other geopolitical threats have the potential to stifle business activity and weaken consumer and business confidence,” he said.

Trade wars are a big worry, but real wars are even bigger, especially if nuclear heavyweights start throwing their weight around more in the Middle East, Ukraine and Taiwan.

I cannot remember a more uncertain time for global geopolitics in the past 50 years, including September 11, the War on Terror, and growing up during the Cold War in the 1980s when superstar Sting sung “I hope the Russians love their children too”.

We knew that 2025 would be interesting after Donald Trump got elected last November, but its frenetic first two months suggest it may be time to brace for much more economic, political and social turmoil ahead.

Originally published as GDP numbers tell a turnaround story, but not the whole story