Politicians facing re-election — especially those behind in the polls — utter all sorts of nonsense. But normally they avoid throwing around the word “recession”. The R-word has a psychological potency that can inflict significant damage. This week, however, Scott Morrison, the mugging, smirking, empty man in the Lodge, has been throwing it around with abandon, insisting that Labor would drive the economy into recession. Not even getting humiliated by David Koch on the subject a couple of weeks ago deterred him. Now that reckless talk has turned around and bitten him after the Australian Bureau of Statistics (ABS) confirmed that the economy slowed dramatically in the second half of 2018, and deteriorated further after Morrison became prime minister last August.
Growth slowed nearly to stall speed in the December 2018 quarter, at just 0.2%, after 0.3% in the September quarter. We’ll now need heroic growth in the current and next quarters to meet even the government’s lowered GDP forecast of 2.75% it made in MYEFO at the end of last year.
Once again, weak household consumption undermined growth, with household expenditure growth back down to 2%, despite all those regular claims that wages growth had turned the corner and would start lifting incomes again. Morrison, who as treasurer and now prime minister has presided over more than three years of stagnation and steadfastly refused to address the issue, owns this aspect of the result.
This is the real issue in the national accounts, not distractions like the “GDP per capita recession”. According to the ABS, Compensation of Employees grew by 0.9%, but don’t mistake that for strong wages growth: that’s total compensation that reflect the size of the workforce, which grew by around 2.2% over the year, as well as remuneration levels — and it’s declining anyway.
Average compensation of employees rose 0.5% in the December and September quarters to be up just 1.7% over the year, which is even lower than the WPI and average weekly earnings. This wages statistic — average earnings from the national accounts, or AENA — is the one the RBA now favours (along with average weekly earnings). And it is going nowhere. It’s optimistic even to use the RBA’s favourite word “gradual” about it.
What’s kept the economy afloat is government spending in two areas: infrastructure investment by state governments and disability, health and aged care spending. The other traditional source of strength, construction, was also weak, with dwelling investment now declining. On top of the continuing slowdown in construction, the economy now faces the usual slowdown in activity around an election — as it did in the September quarter of 2016 when growth came to a shuddering halt of zero in the wake of Malcolm Turnbull’s one-seat win.
The one positive that will widen Morrison’s smirk is that nominal GDP (that’s growth at current prices) jumped to 5.5% in the year to December from 5.1% in the September quarter, helped by a 3.1% rise in our terms of trade, up from 0.8% in the September quarter. Higher nominal GDP will feed into tax revenues, despite a more sluggish economy. And that means more money for Morrison to try to bribe voters with between now and mid-May.
But the real economy is very different to the one Morrison would have us believe. It’s one restricted by systemic wage stagnation of a kind policymakers refuse to address and uncertain business investment (and who can blame them after the political shenanigans of last year) while our increasingly important health and social care sector drives both economic and employment growth (and even what little wages growth there is). The Australian economy isn’t sick yet, but it is heavily dependent on health to remain buoyant.