A few week’s back, the head of the Macroeconomics Group at the Australian Treasury, David Gruen, forecast that average per capita income growth will halve over the next decade to the lowest rate of growth experienced in 50 years (see next chart).
Yesterday’s national accounts data for the September quarter, released by the ABS, provided a harbinger of things to come, with real per capital national disposable income (NDI) sliding by 1.0% over the quarter and also by 1.0% over the year, pulled down by the falling the terms-of-trade (see next chart).
Surprisingly, however, household disposable income defied the decline in NDI, registering a small 0.3% increase in real per capita terms; although it was 0.3% lower over the year (see next chart).
It’s important to note at this juncture that average annual per capita household income growth so far this decade has averaged only 1.0%, which is the lowest rate of growth since the 1980s.
Looking ahead, household income growth will likely weaken further as the terms-of-trade continues to retrace back towards its longer-term average level (see next chart).
These headwinds will be exacerbated by the ageing of the population, which will result in a rising dependency ratio and a falling share of workers supporting non-workers, even under the ABS’ high population growth scenario (see next chart).
In turn, the labour force participation rate and the employment-to-population ratio is likely to continue trending lower (see next chart), lowering growth in both GDP and national income.
Lower income growth, brought about by these structural headwinds, are the new normal for the Australian economy.
