The news is in: Australia is entering dangerous territory with a per-capita recession, where the rate of economic growth fails to keep up with population growth.
But what does this mean for the everyday Aussie?
According to senior economist Stephen Koukalas, Australia has only experienced this three times since the 1990s — once in 2000 when the GST was introduced, again in 2006 and lastly now.
“We’ve kicked off this quarter pretty poorly, the retail sales numbers were pretty marginal at best. For the moment the economy is very subdued and very weak,” Mr Koukalas said.
On a per-capita basis, Australia’s total GDP growth level has shrunk over two consecutive quarters. It shrank at 0.1 per cent and 0.2 per cent in the September and December quarters respectively, according to the Australian Bureau of Statistics.
HOW DOES IT AFFECT YOU?
“It’s not catastrophic it’s just a sign that things aren’t as good as they should be,” Mr Koukalas said. “It’s living standards going backwards, it’s very poor productivity.”
Professor of Economics at UNSW Business School, Richard Holden, called the per-capita recession “unsurprising”.
“This is a reflection of what’s already hurting Australians,” he said. “Unless something’s done to address those, we shouldn’t expect things to rebound.”
He said the RBA might cut rates in response, which could make mortgages cheaper.
But he said it was also a sign that things were bad in retail and not likely to improve.
“Sixty per cent of GDP comes from consumer spending, and consumer confidence has been low, and house prices have fallen pretty significantly over the last 18 months,” he said.
“It’s not surprising it will flow through into GDP.”
Mr Holden said six years of low to no wage growth was coming home to roost, impacting Australia’s economy.
“It‘s a reflection on the amount of economic activity on the economy and how wages are determined and now directly connected to that,” he said.
All economists news.com.au spoke to suggested the per-capita recession would hamper wage growth and — combined with increasing costs of living — make things more expensive.
“It’s a feeling of lethargy in the economy rather than outright collapse, It makes it very hard for wages to pick up when the economy is depressed,” Mr Koukalas said.
“It’s early days to say if it’s a precipice, but it’s looking like a hard landing.”
Mr Holden said the slow economy that led to the per-capita recession could, in turn, lead to lower wage growth.
He said lower wage growth would put pressure on house prices, as without higher wages people couldn’t borrow as much, and if they couldn’t borrow as much then they couldn’t pay as much.
“That’s why I say the poor economic conditions that are reflected in the GDP figures are bad news for wages growth,” he said.
RECESSION VS PER-CAPITA RECESSION
A recession is a period of negative economic growth when the economic cake shrinks. In a recession, people will lose their jobs, and things can get ugly.
We are not in a recession, we are in a per-capita recession where the number of slices of the pie grows faster than the pie so that each person’s slice must be cut smaller.
The economy is continuing to grow, just not fast enough.
Mr Holden said there had been warning signs since late last year that Australia was heading for a per-capita recession.
“There had been a number of warning signs that the December quarter numbers were going to be soft,” he said.
But Commsec chief economist Craig James told news.com.au it was challenging times in Australia last year with a slowdown in global trade and the drought.
“You’ve got to remember we had very strong growth in the first half of the year. This was reflected in the company profit report,” he said.
“Looking forward, consumers and businesses have a lot to look forward to.”
DOES THIS MEAN A FULL-ON RECESSION IS COMING?
Mr Koukalas said a full-on recession was not coming.
“Public spending is strong, export prices are good, there’s some evidence that business investment slump has reached a bottom,” he said.
“To get a recession, you need most of those indicates to slump.”
The last time Australia experienced a recession, 28 years ago, unemployment peaked at 11.1 per cent.
Mr Holden said things could get worse unless something was done.
“In most advanced economies we’ll see a protracted period of quite low GDP growth because there’s a lot of savings globally chasing not enough productive investment opportunities,” he said.
“To address that you need aggressive physical social infrastructure spending.”
However, Mr James said public spending and business investment would prevent a recession.
“We do know from the latest business investment figures that companies are looking to invest over the next 12 to 18 months,” he said.
“Provided the job market remains as strong, that will suggest we will get greater consumer spending.”
He said this in part was already happening in Australia with state governments investing in new roads, bridges, and tunnel projects.
David Ross is a freelance finance reporter. Continue the conversation @FakeDavidRoss