More on GDP

After yesterday’s hoopla over the December 2011 GDP figures, where I also studied the per capita growth rates, Scotty Barber at Reuters produced this chart of year on year real GDP growth since 1960:

For those unsure about the trend, you see that orange line? That’s the average trend growth rate. Take note of the current rate.

The downtrend is clear and obvious, with real GDP growth decelerating since the turn of the millennium and unable to gain traction post-GFC. The economy is still growing, but below trend on a GDP per capita and total basis, even after enormous stimulus (both local and external) applied to it since the nadir of the GFC.

The question not being asked, is whether the current under-trend growth rate can be sustained, given that  a further stimulus is unlikely with a government hell bent on returning to surplus, and over-indebted Australian households unwilling to borrow more to fund the private sector gap.

Comments

  1. The question not being asked is whether the current under-trend growth rate can be sustained

    asked and answered. No. 🙂

  2. The downtrend is clear and obvious

    Yeah, eyeballing the charts yesterday that jumped out at me. Of course, the trend would look a lot worse in GDP per capita terms.

    It also strikes me that the downtrend has worsened since the early 2000s, and the onset of our glorious mining booms.

    So what has the once-in-a-hundred-years mining boom delivered us? SFA I would suggest.

    Cue MineBots, who will naturally say it all would have been a lot worse without the mining booms. But we’ll never know, will we?

    Australian GDP growth looked remarkably strong through the 1990s when commodity prices were in the toilet, the AUD was much weaker, and the credit/housing boom was yet to reach its full mania.

    • I’m not aware of any mine bots — presumably you mean me and 3d1k — claiming that this is a once in a hundred year mining boom. Because it is not — a fact which should be clear to anyone who looks at one hundred years of data.

      So -1 for straw man claim.

      Despite a glorious mining boom from the 2000s the country has run a CAD and had negative terms of trade until early 2008. Arithmetic says if exports were less the CAD would have been worse. However we cannot say would would have happened in other parts of the economy had there not been a glorious mining boom. So it is mere speculation.

      • BTW the 100 year stuff sounds more like Canberra hyperbowl. e.g. we have 100 year floods that actually happen every 20-30 years if not more often. Ditto droughts. etc.

      • I’m not aware of any mine bots — presumably you mean me and 3d1k

        Who else?

        claiming that this is a once in a hundred year mining boom. Because it is not

        Henry Thornton (aka Peter Jonson) says:

        our terms of trade have exceeded the one hundred year record

        There’s a long term chart from the RBA that supports this.

        However we cannot say would would have happened in other parts of the economy had there not been a glorious mining boom. So it is mere speculation.

        Fair enough, but that doesn’t stop the mining boom cheerleaders from lecturing us that we’d be down the tubes without the mining boom. Who knows where our nascent IT sector, education and tourism sectors might be if the AUD was still at 60c. Its impossible to know.

        • Here’s the long term RBA chart.

          And it goes without saying the AUD is at a 30 year, post-float high.

          So not really Canberra hyperbowl, just incredibly difficult circumstances for any trade exposed sectors not digging up dirt.

          • The long term RBA TOT chart can be tattooed on the forehead of every bullhawk twit bellowing ‘Onward and Upward, Lads!’

            We may in the end be grateful 80% of Australia’s mineral wealth is foreign owned – they can wear the capitalization hit coming.

            Do bullhawk twits bellow?

          • “We may in the end be grateful 80% of Australia’s mineral wealth is foreign owned – they can wear the capitalization hit coming.”

            There you go DC, letting the cat out of the bag.

            I was hoping the minebots, MSM and wildebeeste hold out on the mining boom furphy all the way to the end.

        • This is a bit apples and oranges.

          When you say “mining boom” but mean “terms of trade boom” then yes I agree, the last 3 years have been gangbusters for terms of trade.

          When I say “mining boom” but mean boom in prices for mining commodities it is not a once in a hundred year event, as numerous RBA papers have shown.

          If the AUD was at 60c then it is not too much of a stretch to expect that tourism and education would be doing significantly better. I’m guessing you are linking the terms of trade to the currency. I noted today on another blog when someone was making the connection between the rising terms of trade and currency in the last 3 years, that prior to that we had 7 years in which they were negatively correlated.

  3. Nice work Prince and Scotty Barber. A clear and concise rebuttal without any pollywaffle. If professional economists can’t grasp a simple chart like that then heaven help us.

    • Diogenes the CynicMEMBER

      The first assumption a professional economist makes is: let us assume our models reflect reality…then we should do….

  4. Having been misled by the RBA and the Treasury on the strength of the economy, I think the government has set itself up for failure, with just over one year to go to the elections.

    Get used to the idea of having Tony Abbott as Prime Minister and Joe Hockey as Treasurer.

    • It will be a close-run thing, Mav. The polls have narrowed in recent months. More rate cuts from the RBA would bring Labor right back into the game. I think the biggest danger is another hung parliament and that’s what we might get!

      • I don’t know if a hung parliament is so much of a risk – the current one seems to be motoring along getting legislation done that previously never made it out of the starting blocks.

        However I can’t see a hung parliament coming in quite the same circumstances as at present – the current Independents in the balance look pretty precarious.

        • FWIW, I’m a big fan of the hung parliament. Things got done (carbon tax) that never would have happened otherwise.

          It won’t happen next time though. Oakeshott and (probably) Windsor are goners. Sad really, because I reckon they did a lot more their electorates than the incoming National Party backbenchers will do in the Abbott government.

          • agreed – unfortunately, like DD, Australians are not ready for such a parliamentary structure, which individuals show backbone, instead of toeing a line wondering when they will get stabbed in the back

            O/W are “goners” is true – the vitriol around those chaps has been astounding. I actually consider them to be very good parliamentarians (Senator quality in fact) – probably get shot down for saying so, but thats my opinion…. (and maybe it doesn’t/shouldnt count, since I don’t vote)

          • The seats of the cross benchers in hung parliaments and marginal seats are where the goodies go.

            It could be argued that a rational electorate would vote against the incumbent every time!

          • General Disarray

            Oakeshott and Windsor are the only politicians I can listen to without wanting to jump in front of a train.

            It will be sad if they get the boot, both seem like really good people.

          • Alex Heyworth

            Senator quality, Prince? You mean unrepresentative swill? (copyright P. Keating)

  5. There are parts of Australian GDP growth in the past that can’t be replicated.

    A classic example is the increased participation in the workforce by women and their partial replacement during early childhood by pay for use childcare.

    This was offset (partially or fully I don’t know) by decreasing participation on the part of 16 to 21 year olds as high retention rates improved and more had the opportunity for post secondary education and also by earlier retirement as it moved from an average of about 63 towards 60 or less.

    But we probably can’t increase female participation in the workforce all that much now so that source of GDP growth is gone.

    Under MMT we could increase the participation of the 16 to 21 year olds by offering attractive apprenticeships, increasing the cost of university education etc – not saying these would be good long term economic or social policies, just that it would alter GDP and affect growth rates during the transition.

    The quality and value of the output isn’t measured by GDP directly and GDP is not everything even on a per captia basis according to Maslow and various analyses of causes of happiness.