Quarterly national accounts: it’s all about productivity, stupid

No doubt Treasurer Jim Chalmers will be out there bragging about the positive growth in per capita GDP. Artwork: Frank Ling

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In the normal course of events, the release of the quarterly national accounts is not a big deal. Most of the information used to estimate GDP growth and its components is already in the locker. We already knew that GDP growth was going to show an uptick, partly because the terms of trade had shown positive growth in the quarter compared with the previous three quarters of negative growth.

No doubt Jim Chalmers will be out there bragging about the positive growth in per capita GDP after seven consecutive quarters of negative growth. GDP per capita is a reasonable proxy for living standards.

But at 0.1 per cent over the quarter, most people won’t be feeling the love. And bear in mind, these measures are subject to revision and so it could end up as a big fat zero.

While public spending continues to make an excessive contribution to output growth, there were signs in the last quarter of last year that private spending, particularly household consumption, was making something of comeback. Whether this improvement is sustainable remains unclear.

A key question is whether these national accounts figures will influence the thinking of the new monetary policy board. Note that its first meeting is due for the end of this month, with a decision on the cash rate to be announced on April Fool’s Day, albeit in the afternoon – no jokes anticipated. This will likely occur during the election campaign.

Overall, the economy is still travelling below trend, at an annual rate of just 1.3 per cent. But the pick-up in the December quarter may be sufficient to influence the thinking of the MPB members. A pause in the cash rate may be seen as the most prudent call, particularly since the trimmed mean of the CPI has not yet printed within the target band.

But the most important message in these national accounts is the continuing decline in productivity. GDP per hour worked fell by 0.1 per cent in the quarter, after declines of 0.7 and 0.5 in the previous two quarters, respectively. The level of labour productivity is where it was in 2016, a dismal and historically unprecedented outcome.

As the previous governor of the RBA, Philip Lowe, has observed, the main game in terms of explaining falling living standards and the associated financial pressures that many people feel is productivity. Interest rate rises are a small part of the explanation. Had we been able to achieve trend productivity growth over the past nearly 10 years, real incomes would be 9 per cent higher. This would be a very material outcome.

Sadly for the country, the Labor government has completely failed to implement policies that would facilitate higher productivity. Indeed, there are a series of productivity-sapping policies that are undermining private sector incentives to invest – think here industrial relations regulation, the regulation/approval quagmire, rapidly rising energy costs, the care economy. While some members of the opposition appear to grasp the problem related to productivity, we are yet to see a compelling agenda that would turn things around. Perhaps we will learn more during the election campaign.