Labor presiding over longest run of negative GDP per capita since 1970s

The Albanese government is ­presiding over the longest household recession with GDP per ­capita going backwards for the past six quarters, in a trend that exceeds any period in the past 50 years.

Anthony Albanese listens to Jim Chalmers during question time on Monday. Picture: NewsWire / David Beach

The Albanese government is ­presiding over the longest household recession with GDP per ­capita going backwards for the past six quarters, in a trend that exceeds any period in the past 50 years and economists warn is likely to continue.

As Anthony Albanese seeks to steer the political agenda back to cost of living this week before parliament rises for the long summer break, official statistics show the household recession which began in the March quarter of 2023 was at risk of becoming entrenched.

While GDP per capita dipped lower during the past four technical recessions, the length of the current so-called household recession has not been experienced during any other downturn of the past half century.

Economists have warned that it will be more extended, with the possibility that Labor may record two years of continuous negative GDP per capita growth.

Jim Chalmers on Monday defended the government’s record on economic management, but acknowledged that the household experience was not necessarily reflected in the economic and inflation numbers.

In the first question time of the last sitting week of parliament for the year, the Treasurer said that, despite making “good progress”, the government knew that didn’t “automatically translate into how people are feeling or faring in the economy and we know it’s not mission accomplished because of how people are feeling”.

Economist Saul Eslake said it was possible negative growth on this measure would continue for the next two quarters before rising again. “It is significant issue …. while GDP per capita is not quite as salient to voters as real disposable income, the two are very closely linked … its’ another indicator that the economy is performing poorly,” Mr Eslake told The Australian.

The analysis of ABS national accounts data for GDP per capita, measured as economic output divided by population, comes after The Weekend Australian revealed on Saturday there had been a fall in living standards due to the inflation crisis. Real household disposable income has fallen by 9 per cent since March 2022.

According to the new analysis there has been a 1.6 per cent fall in GDP per capita since December 2022 across six consecutive negative quarters.

Of the eight quarters since Dr Chalmers became Treasurer, GDP per capita has fallen in seven.

The 1982-83 recession was the closest period of prolonged downturn on the same measure. Although GDP per capita fell by almost 7 per cent over that entire period, the longest consecutive run of negative GDP per capita quarters lasted only four quarters in a row. Two other periods of consecutive negative growth were also experienced during this recession.

During the 1990s recession there were two sets of consecutive negative quarters: March and June 1990 with a 1.2 per cent fall and March and June 1991 with a 2.1 per cent fall.

The 1974-75 recession also recorded two periods of two consecutive negative quarters of GDP per capita growth – March and June 1974 and September and December 1975. Those periods had 2.8 per cent and 3.2 per cent falls in GDP per capita respectively.

During the Covid pandemic, when the nation was shut down, the economy recorded two ­consecutive quarters of negative GDP per capita – March and June 2020. While GDP per capita fell 7.3 per cent it recovered quickly.

Although the analysis only goes back to the early 1970s, economists agree that it was safe to assume this GDP per capita slump was the longest running cycle of negative growth quarters since the 1950s.

The government now risks heading to an election with potentially two years of falling living standards as well as two years of negative GDP per capita growth.

Dr Chalmers last week defended government spending measures that had kept the economy out of technical recession and pointed to a fall in headline inflation, largely a result of the billions of dollars in energy subsidies handed out by federal and state governments.

Underlying inflation, which the Reserve Bank uses as the more relevant measure for monetary policy, however, remains higher than the central bank’s target band.

In question time Dr Chalmers accused the Coalition of being responsible for bringing in an era of falling living standards.

“We know people are under pressure, we know people have a lot of ground to make up in their household budgets,” the Treasurer said.

“We have made some good substantial progress, inflation is now less than half of what we inherited and back in the RBA’s target band and wages have grown now for four quarters in a row.”

“That’s why our cost of living help is so important, getting inflation down, getting wages up, tax cuts, energy relief, rent assistance, cheaper medicines, cheaper early childhood education … and we have done that at the same time as delivering a million jobs and two surpluses when those opposite couldn’t deliver a surplus in nine years,” the Treasurer said.

Mr Eslake said he “wouldn’t be surprised” if GDP per capita remained negative in the September and December quarters. “(But) I think this will be the last,” he said. “Inflation is coming down, more quickly than wages, and we have the tax cuts. And 2025 we will see some reduction in interest rates. I think GDP per capita will pick up but it won’t pick up quickly, and it’s quite possible we will end up having eight quarters of negative GDP per capita growth.”

Opposition Treasury spokesman Angus Taylor said the current household recession was without precedent.

“Under the Albanese Labor government, Australia is experiencing the longest household recession on record,” Mr Taylor said. “GDP per capita has gone backwards for the past six consecutive quarters. This is completely unprecedented.”

Mr Taylor said Labor was “blind to the storm ahead”.

“The only thing propping up our economy right now is migration and government spending,” he said.

“Under Labor the size of the economic pie remains the same, but with a record number of migrants arriving in this country, Australians are only getting a tiny slice. That is not responsible economic management and will only see the country continue to go backwards.

“We need to grow the pie so hardworking Australians can enjoy a bigger slice.”

Mr Taylor said Labor had failed to “tackle the source of the problem which is persistent inflation and record migration”.