Deutsche Bank has forecast that Australia’s official unemployment rate will rise to 4.5% by the end of 2023. This is one percentage point higher than the current unemployment rate, meeting the investment bank’s definition of a recession.
However, Deutsche Bank does not expect Australia to experience a “technical recession”, which is typically defined as two consecutive quarters of negative GDP growth.
Chief economist Phil O’Donaghoe says Deutsche regards the definition of a technical recession to be “singularly unhelpful for Australia” because it is not accurate from a welfare perspective. In this regard, “a one percentage point rise in the unemployment rate within a year is a far more useful description”.
Deutsche Bank’s ‘recession’ forecast centres around an expected slowdown in household consumption, which typically accounts for around 55% of economic growth in a typical quarter.
O’Donaghoe notes that “the shock to household financial obligations that is already underway points to significant downside risks to the RBA’s consumption forecasts”:
I prefer Deutsche Bank’s definition of recession in Australia’s context because of our ‘Big Australia’ mass immigration policy.
The federal budget’s 235,000 net overseas migration (NOM) forecast means that Australia’s population growth will again dwarf other advanced nations:
Accordingly, it will be very hard for Australia to register a technical recession because the strong inputs in people will generate more outputs in aggregate GDP.
However, just because the total economic pie will continue to grow via strong population growth does not mean everybody’s share of the pie (welfare) will grow. Australia recorded several per capita recessions over the past two decades, even though the aggregate economic pie continued to grow:
Indeed, Australia’s real per capita GDP growth was abysmal over the past decade, tracking at around 1% growth per annum since 2014:
Extreme immigration fueled population growth has been the main driver of Australia’s GDP growth this century, while per capita growth has worsened.
At least Deutsche Bank’s recession definition nets out the impacts of population growth by focusing on the unemployment rate.
Personally, I’d rather see economists and the media focus on per capita measures when they report economic statistics, since they better capture welfare and living standards.
They need to recognise that population-driven growth is ponzi growth and the very definition ‘tail wagging the dog’ economics.
Sadly, the Albanese Government has doubled down on the same dumb growth model by ramping immigration to record levels instead of focusing on productivity.
As a result, Australians are facing another ‘lost decade’ of falling living standards.
