’Longest anybody can remember’: Recession call no Aussie wants to hear

Aussies are being screwed over by “toxic” leaders who don’t want you to know you’re getting poorer – and things could soon get a lot worse.

ANALYSIS

If the tree falls in the woods but there is nobody there to hear it, did it happen?

More importantly, if an economy shrinks in an expanding crowd of people, did it happen?

This paradox is at the heart of the Aussie economy right now.

Last week we got the news that per capita GDP fell in the March quarter. Put another way, your slice of the economic pie shrank.

You probably missed this fact because the overall pie got bigger, and that’s all anybody reports.

It wasn’t always this way. GDP per capita used to be a much more important measure than GDP for policymakers, because it measures how your living standards are performing.

But, in these post-truth days, your living standards have taken a back seat to the needs of toxic politicians who would rather you not know when you are getting poorer.

Households are getting poorer. Picture NCA NewsWire Gaye Gerard

Pulling a rabbit out of a hat

Politicians use a simple trick to hide your shrinking economic slice. They increase mass immigration to drive population growth in times of trouble.

More people means more transactions and so more GDP. A larger pie.

Of course, more people amid a downturn means an even smaller slice of economic activity for you than otherwise, but because nobody reports the latter, it doesn’t matter.

The pollies get to claim there is no recession and parade themselves as great successes.

How did it come to this?

In the good old days, pollies would cut immigration numbers during downturns. This mitigated the impact of a downturn on Australian living standards.

But after 2012, during the great mining bust, the Coalition government kept its foot on the immigration accelerator for the first time during a downturn.

How bad could an Australian recession get? Picture: iStock

Immigration went from being an economic complement to an economic driver.

The result was an unprecedented ten years of weak per capita GDP. Your slice of the GDP pie rose very slowly but fell in real terms as stuff like housing shortages and crush-loaded public services and the environment were never counted.

That same trick is now being pursued by a Labor Government as the great inflation bust transpires.

How bad will it get?

With mass immigration-driven population growth currently at 2 per cent, GDP must grow at least that much to stop your slice of the pie from shrinking.

As the RBA breaks the economy in the inflation fight, the next two quarters at least will very likely be under that rate, so we are looking at the longest per capita recession that anybody can remember.

This is going to lift unemployment well above 5 per cent and sink your hoped-for pay rise. That’s another blow to your living standards.

As the RBA breaks the economy, Australia is facing the longest per capita recession that anybody can remember.

For a headline GDP recession to appear, the economy will need to shrink more than the 2 per cent that the population grows.

That is no small task. Though the Reserve Bank is having a good crack at it.

It is less likely than not unless the housing market rolls into a double-dip correction. It probably won’t thanks to, you guessed it, mass immigration.

This is another insight into why our toxic landlord pollies love their new economic model so much.

If we do get a headline recession, we’ll see the unemployment rate head towards 8 per cent.

Worse, as Chinese growth winds down toward developed economy speeds, our commodity prices are crashing and will keep doing so in trend terms. This repeats the experience of the post-2011 mining crash as national income is drained away.

If we do get a headline recession, we’ll see the unemployment rate head towards 8 per cent.

So, even after the economy resumes enough growth to get above the rate of population growth, it will not be by much, and your living standards will keep falling as the crush-loading of public services and the environment resumes.

A stern word with your local pollie might be in order, though s/he may be too busy interviewing for new renters.

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geopolitics and economics portal. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.