Weakest GDP recovery in 40 years

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ScreenHunter_19 Mar. 06 16.12

By Leith van Onselen

Following on from yesterday’s national accounts release by the Australian Bureau of Statistics (ABS), I thought it would be interesting to once again benchmark Australia’s economic recovery since the Global Financial Crisis (GFC) against the recessions of the 1970s, 1980s and the 1990s. For the purpose of the analysis, I have chosen to use real GDP per capita as the measure, since it removes growth distortions from population growth and inflation, and better reflects economic welfare than the headline real GDP figure typically quoted by economists.

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As shown by the above chart, which measures real GDP per capita using the ABS’ trend measure, it took 8 quarters (June 2010) before GDP per capita recovered to its June 2008 level. And 19 quarters later (March 2013), GDP per capita is only 3.5% above the level in June 2008.

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While the 2008 slowdown (recession in terms of real GDP per capita) was not as severe as the previous three episodes, the recovery has clearly been the weakest of the four episodes. The trends look likely to widen the gaps further.

Although the recovery in real GDP per capita has been weak this time around, it would be wrong to suggest that Australians are worse-off. Real per capita national disposable income (NDI) – arguably, an even more useful measure of welfare – initially grew strongly post-GFC, but has recently fallen back to earth, as shown by the below chart (data unfortunately does not exist for the 1970s and 1980s recessions):

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The reason for the strong recovery and more recent decline in real NDI per capita is the sharp rise and then fall in the terms-of-trade, which rose by 40% in the two years to September 2011, but has fallen by 15% since (see next chart).

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As the terms-of-trade continues to unwind (both iron ore and coal prices have fallen sharply over the second quarter), it will drag on NDI growth, meaning that Australia is likely to underperform on this measure too.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.