Australia’s GDP disaster could be the best thing that ever happened to us

AUSTRALIA posted its worst economic performance since the Global Financial Crisis yesterday, but there are some crucial things the numbers hide.

Australia posted its worst economic performance since the great financial crisis in yesterday’s national accounts figures.

WOW. Australia’s economic growth has surprised everyone by being really terrible. In fact, calling it growth is wrong. The economy shrank. And it shrank by 0.5 per cent, which is a lot.

This is our worst three months of GDP growth since 2008 (when, you will remember, the world was falling apart and we had a good excuse). Before that, you have to go back to 1991 to find a worse one. That was our last proper recession. This graph shows the falls in quarterly growth in red.

Quarterly gross domestic product growth. Source: ABS 2506.0 September 2016

The economy matters a lot. Low economic growth means fewer fulltime jobs and fewer pay rises. This is serious. But there are two things to say about the latest number, and both of them are hopeful.

1. It’s not actually quite as bad as it seems

Gross domestic product is the big picture. There are ways of measuring the economy that matter more to people’s lives. Like this one: net national disposable income per capita. It shows the part of GDP that is actually available to us, per person, and it went up!

Net national income per capita growth (seasonally adjusted). Source: ABS 5206.0 September 2016

That’s good news. Sure, the latest result is a small increase, but we’ve now had three positive numbers in a row, and that is way better than the two years before that where it was always zero or negative. (If you felt like you weren’t getting any better off in the past few years, the above graph is why.)

So the economy is battered and bruised, but it could always be worse!

2. The GDP issue looks so bad, it might do some good

A big negative GDP growth result is a really bad sign. If we get another negative three-month period, that counts as an actual recession and we can just about guarantee higher unemployment.

The government will be petrified of that. They kept saying “jobs and growth” during the election campaign and I bet they feel pretty stupid right now. (“Part-time jobs and shrinkage” would have been a more accurate slogan.)

They will definitely try to fix it.

This could be good news. It’s time for our government to lose its obsession with the Budget. They hate spending (remember the Budget emergency?). But one of the big reasons we got a shrinking economy is they stopped spending so much.

If they change their mind on that, we could all benefit. The trick here is not to just hand out money. The trick is to build some infrastructure we can actually use.

That will make growth higher, now, from building it, and in the future, as the new infrastructure helps the economy function better.

I’m thinking internet infrastructure — a better national broadband network sooner. We also desperately need more transport infrastructure in our cities.

In the past, Australia just would have looked to the Reserve Bank to boost growth. “Cut interest rates!” we would have said. But now, Australia’s households are swimming in debt. Cutting rates might make people borrow even more to buy houses. That would add risk to our economic stability and it is clear the RBA doesn’t want to cut rates much more.

If anyone is going to take on a bit of debt, it should be the federal government. Our federal debt is low compared to most of the world, and anyone who has sat in a traffic jam or been on a crowded train can think of plenty of things we can spend money improving.

If Treasurer Scott Morrison and Prime Minister Malcolm Turnbull get the message from this GDP disaster, it could be a turning point for the whole country. If not, the run of bad numbers is likely to keep coming, and the next election might be their last.