Contributed by Joe Montero
So, the Australian economy is doing well and grew by 3.4 percent in the last quarter? This is what the official figures just handed down are telling us. If it were true, it would be welcome news. The trouble is it isn’t true.
There are two main reasons for saying this. One is that comparing performance just after lockdown to performance in lockdown creates false picture that won’t last. Far more telling are the trends in the economy, which will take us into the future. When it comes to this omission and distorted data is used to create a different sort of distortion.
The Gross Domestic figure (GDP) used to deliver the good news is based on domestic spending. After months of lockdown, Australians came out into the streets again to spend some of what they couldn’t spend before. This is not real economic growth. It is using some of the savings that had been forced on citizens who had been excluded form parts of their lives. This was household spending and not investment in the economy, which would be as true measure of increasing economic performance. Private investment continues to fall, and the government’s contribution has flatlined.
Data from the ABS
Put this aside and it remains that spending continues to be sluggish when compared to pre-pandemic times. The growth claimed is on the base of the previous quarter’s 1.9 percent dip, the third biggest quarterly fall in GDP ever. If we want to see what is really going on, it is necessary to look at what has been happening over a longer period. The reality is that in this context, Australia’s economy continues to shrink in real terms.
The wages share of income has been shrinking since the early 1970’s, and fell by another 3 percent through the pandemic. The ABS has stopped publishing figures for this in December. But we can assume there has been no turn around since then.
This means that that the temporary increase in consumption has mostly been covered through the creation of more debt. We live in a strange world when it is considered that growth in debt is considered economic growth.
The ratio of saving to income fall from 19.8 percent to 13.6 percent. Household disposable income fell by 0.5 percent.
A big component pushing up GDP is the still rising cost of housing across the nation. Australians having to spend more of their income to keep roofs over their heads This is falsely counted as economic growth. What motorists have been paying at the bowser has risen consistentlyand is now up to $1.80 a litre. House prices went up by an average of 3.2 percent over the quarter and rents have increased along with them. The rising cost of housing alone, just about cancels the so-called 3.4 percent GDP rise.
Data from the ABS
In fact, the price of just about everything is going up. This means that inflation is starting to bight harder and adding a further distortion to what the GPD numbers mean.
Another reality check is Australia’s trade with the rest of the world shrank by 5.1 percent, which is the biggest fall since the June quarter of 2009 because of the Global Financial Crisis. The full impact of this is still to flow through the domestic economy.
All these problems continue the negative trends embedded in the Australian economy. They’re not suddenly going to turn around, especially when there has been no shift in underlying forces, the long-term contraction of returns on investment in the real economy, the distortions of a financial system far too dependent on the creation of debt and speculation, the continuing decline in the wages share, and the failure of government to adapt policy to the needs of the day.
Fairy tales about a quick economic recovery are misleading and dishonest. But then again, aren’t we heading towards an election