Global and Australian growth will probably slow even further, the OECD has warned in the wake of figures confirming the national economy has fallen into a ”per-capita recession” for the first time since 2006.
The Australian dollar dropped sharply to a two-month low of $US0.703 as economists slashed their predictions for official interest rates to reach a record low of 1 per cent by September.
Prime Minister Scott Morrison has repeatedly said economic growth will be weaker under Labor, but the final two results of this term of government show the Coalition will lead Australia back to the polls struggling to lift a slowing economy.
The economy grew 0.2 per cent in the final three months of last year, following a 0.3 per cent result in the September quarter. It was the worst back-to-back quarterly result since the middle of 2006 and took annual growth down to 2.3 per cent.
Of more concern, GDP per person dropped 0.2 per cent, the second consecutive fall in the widely used measure. It was only the third per-capita GDP recession since 1991.
The disappointing result was buffered by the Australian Bureau of Statistic’s preferred measure of living standards, real net national disposable income per capita, which was up by 1.4 per cent over the year.
At the same time, average compensation per employee rose at the below-inflation rate of 1.7 per cent. Company profits climbed 10.9 per cent.
Treasurer Josh Frydenberg said the figures showed the “economy is in fundamentally good shape”, but the yearly figure “did represent some moderation on the back of strong results”.
He said the drought, lower mining investment and a decline in residential construction activity were to blame for the lower than expected result. However, he talked up other measures of the economy.
“The unemployment rate has fallen to 5 per cent, the lowest level in seven years and to a remarkable 3.9 per cent in our largest state, NSW – a level that hasn’t been seen since the 1970s,” he said.
Despite the real GDP slump, nominal growth – the amount of money that is likely to flow into the budget – is up by 5.5 per cent over the year, giving the government room to hand out tax cuts to strained households.
Shadow treasurer Chris Bowen said the government had “lost the moral authority to
campaign and talk about the economy”.
“Per head of population, the Australian economy has gone backwards. This is only the third time it has happened since 1991,” he said.
The state of the economy is set to be a key part of the coming federal election, with the OECD on Wednesday slashing global forecasts for the growth in the face of trade tensions and falling business and consumer confidence.
It sliced its forecasts for Australian growth to 2.7 per cent, a 0.2 percentage point reduction, and reduced its prediction for 2020 to 2.5 per cent.
The Paris-based think tank said that while the Australian economy was relatively strong, it could be hurt by the local property market.
“Continued labour market improvements, higher public infrastructure spending and accommodative financial conditions should all support domestic demand, but headwinds have started to appear from the housing market slowdown and export market growth is set to slow,” it said.
Reserve Bank governor Philip Lowe said it was clear the economy had slowed in the second half of 2018.
He released research showing that higher houses prices had boosted elements of the economy, particularly sectors such as car sales and furnishings.
“Falling housing prices, and a decline in measured household wealth, could have the opposite effect,” he said.
The Business Council of Australia and the Australian Chamber of Commerce both said the lack of government direction was cramping investment and low productivity was putting workers at risk.
Economists warned that worse was to come. Ben Udy, of Capital Economics, and Shane Oliver from AMP said the central bank would probably be forced into action as growth slowed to 2 per cent next year.