For the first time since the March quarter of 2011, Australia’s economy has shrunk.
Over the September quarter, real growth domestic product (GDP) declined 0.5% – the largest fall since December 2008 (the midst of the GFC) – bringing Australia’s year-on-year growth figure down to 1.8%.
It means that if Australia suffers another contraction over the December quarter, the country will slip into a recession – putting an end to its 25-year winning streak.
It would also mean the country agonisingly misses out on breaking the Netherlands’ world record of 26 recession-free years by only two quarters.
The latest figures are a surprise, since economists had forecasted a fall of only 0.1% over September.
“Not Just A wake-up call”
In a statement, Treasurer Scott Morrison said the September results made clear the very real risks to Australia’s economy and shows that economic growth in Australia cannot be taken for granted.
“While the economy still grew by an encouraging 1.8 per cent through the year, it is not sustainable that real GDP contracted by 0.5 per cent in the September quarter,” he said.
This week’s national accounts data demands we enact policies that drive investment & support Australian businesses. pic.twitter.com/QYp68Gf9cT
— Scott Morrison (@ScottMorrisonMP) December 8, 2016
“The contraction in real GDP recorded in the September quarter is not just a reminder, a wake-up call or a warning about being complacent when it comes to economic growth, it is a demand to support economic policies that drive the investment needed to support job security, the hours and wages that hard working Australians need to deal with rising costs of living – especially on energy and businesses, and the need to survive in a very tough and competitive economy.”
How Australia’s GDP Fell In September 2016
The largest contributor to the fall in GDP, on an industry basis, was a 3.6% fall in the output of the construction industry.
These other industries recorded either below trend growth or decline over the quarter:
- financial and insurance services
- professional scientific and technical services
- rental hiring and real estate services
- administrative support services.
On the other hand, agriculture grew 7.5% while mining production maintained its historically high levels of production.
|September Detractions from GDP Growth|
|Public capital expenditure||-0.5 percentage points|
|Private investment in new buildings||-0.3 percentage points|
|New engineering||-0.2 percentage points|
|Net Exports||-0.2 percentage points|
|New and used dwellings||-0.1 percentage points|
Speaking on 2GB to Ross Greenwood, Mr Morrison said the biggest challenge confronting the Australian economy was shrinking new business investment, which contracted for the 12th consecutive quarter.
“We focussed on it in the Budget and that is why the Enterprise Tax Plan has been so important,” he said.
“That is why our infrastructure program and investing in that has been so important and completing and rolling out the NBN and all of these important projects which drive investment.”
Shadow Treasurer Chris Bowen said Mr Morrison and Prime Minister Malcolm Turnbull have nothing to blame the disappointing result on except their own chaos and dysfunction.
“Today’s result should be a wake-up call for a Prime Minister and Treasurer whose only plan for the economy is to provide a $50 billion tax cut for big business – one that delivers a meagre 1 per cent in extra growth over the next 20 years,” he said.
— abc730 (@abc730) December 7, 2016
“This Government has barely talked about serious economic reform, let alone delivered any.
“It’s time Malcolm Turnbull and Scott Morrison stopped worrying about their own jobs and started worrying about the jobs of middle- and working-class Australians.”
Are we headed for a recession?
A recession is defined as two consecutive quarters of negative growth, so Australia would have to record a negative growth number for the December quarter to technically be in a recession.
We’ll know by March, when results for the December quarter are released.
However most economists are confident Australia’s GDP growth figure will bounce back into positive territory.
AMP Capital Chief Economist Shane Oliver said there is no reason to get too gloomy.
“A lot of the factors which drove the weak third quarter outcome will not repeat in the fourth quarter GDP numbers,” he said.
“Weak September quarter GDP partly looks like payback for stronger than expected GDP growth over the year to the June quarter of 3.1 per cent”
ANZ Head of Australian Economics Felicity Emmett said although the drop in GDP was a shockingly weak result, there are a number of temporary elements to the weakness and expects a bounce in activity in the fourth quarter.
“We expect that today’s numbers overstate the underlying weakness in the economy,” she said.
“Housing is likely to rebound given the amount of work in the pipeline, resources exports should grow strongly given ongoing expansion in LNG supply, and profits growth should pick up supported by higher commodity prices and a bounce back in small business profits.”