The fairytale of uninterrupted gains and signs of the reckoning to come

Yesterday’s figures are “a source of considerable embarrassment” to the Reserve Bank and its governor, Philip Lowe. Picture: Mick Tsikas/AAP

The national accounts figures were not what the government wanted. They showed a picture of a sluggish economy being solely propped up by government recurrent and capital spending.

GDP growth for the December quarter was a mere 0.2 per cent, making for annual growth of only 2.3 per cent.

It’s apparent from the figures that the economy started to slow significantly from the middle of last year. Consumption growth, the largest single component of GDP, rose by only 2 per cent over the year, with the savings ratio rising somewhat after a long period of decline.

Consumers, it would seem, are very nervous and may well be feeling the effects of the hit to their wealth associated with falling house prices.

Private investment, including on housing, and net exports also contributed to the poor GDP result. The drought being experienced in parts of the country impacted on rural export volumes.

Mind you, the terms of trade — the ratio of the price of exports to the price of imports — has been a help to economic growth.

But here’s the most important aspect of yesterday’s GDP figures: we are now officially in a GDP per capita recession, with GDP per capita growth having recorded negative figures for two successive quarters. The last time this happened was in 2006, and before that, 2000.

Forget all that piffle about Australia enjoying uninterrupted economic growth for over a quarter of a century. When it comes to GDP per head of population, a reasonable approximation to living standards, we have in fact experienced three recessions.

It’s why many of us currently don’t feel better off.

Whereas other countries have done quantitative easing to prop up their economies, Australia has used people easing. Our very high rates of migrant intake have led to rates of population growth in this country two to three times higher than in almost every other developed economies.

And bear in mind this massive explosion in the population, largely concentrated in Melbourne, Sydney and southeast Queensland, imposes costs that are simply not counted in the GDP figures.

Yesterday’s figures are a source of considerable embarrassment to the Reserve Bank and its loquacious governor, Philip Lowe. Still bullish on the economic outlook, its official forecasts put GDP growth for this year at 3 per cent. That is definitely on the high side.

Lowe can’t understand the disconnect between the labour market, which seems strong, and the weakness in the economy.

Here’s a tip: it has a lot to do with higher government spending associated with the National Disability Insurance Scheme and other spending programs.

And don’t you just love Lowe’s idea wages can be increased by fiat and this will help the economy?

I don’t know where he learnt his economics but if you look at the charts it is clear wages have been moving in line with sluggish productivity growth, having exceeded productivity growth during the height of the mining boom.

Here’s the thing Phil: there has been a massive increase in public investment on human capital — thinks spending on early childhood learning, schools and higher education — and there has been no pay-off in productivity at all.

We should really expect much better from the Reserve Bank than this sloppy thinking.

For the government, the conundrum is this: the budget surplus for 2018-19 is probably safe but these national accounts figures will need to feed into the economic parameters that form the basis of the forward estimates presented in the budget.

Life suddenly got more difficult for the Treasurer.