Gloomy Economic Outlook: Australia Falls Into per Capita Recession

People walk along Flinders Street, in Melbourne, Australia, on June 28, 2022. (AAP Image/Diego Fedele)

The Australian economy has shown worrying signs as the nation enters into the second quarter of declining economic output per capita.

According to the latest national accounts, Australia’s GDP per capita dropped by 0.5 percent in the September 2023 quarter, following a 0.1 percent fall in the June quarter.

With two consecutive quarterly drops in economic output growth, Australia has technically sunk into a GDP per capita recession.

In contrast, the GDP grew slightly by 0.2 percent in the three months to September, down from a 0.4 percent increase in the June quarter.

“This was the eighth straight rise in quarterly GDP, but growth has slowed over 2023,” said Katherine Keenan, the head of national accounts at the Australian Bureau of Statistics (ABS).

“Government spending and capital investment were the main drivers of GDP growth this quarter.”

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And throughout the year, the total economic output rose by 2.1 percent.

The above figures indicate that while the Australian economy is still expanding, it is unable to keep pace with population growth.

Concerning Signs About Australian Households

During the September quarter, household spending remained unchanged.

The ABS said the cost of living measures, including electricity rebates and the expansion of childcare subsidies, had resulted in increased government consumption on behalf of households.

In terms of annual growth, household consumption rose by 0.4 percent in the 12 months to September, the lowest rate since the March 2021 quarter.

The most significant drop in household spending was recorded in the energy category (electricity, gas and other fuel), with a 16.9 percent decrease, followed by cigarettes and tobacco (-3.9 percent) and other goods and services (-2.8 percent).

Meanwhile, the household saving-to-income ratio plunged from 2.8 percent to 1.1 percent, marking the eighth consecutive quarter of decline and the lowest level recorded since the December quarter of 2007.

“The removal of the Low and Middle Income Tax Offset in the 2022-23 financial year meant many households had a higher income tax bill this quarter, which has contributed to the fall in the household saving ratio,” Ms. Keenan said.

“Increased interest paid on home loans and inflationary pressure on households were also likely factors behind the fall in the household savings ratio.”

A shopper places produce in a bag at Victoria Market in Melbourne, Australia, on July 5, 2022. (William West/AFP via Getty Images)

Falling Export Values

Exports of goods and services declined by 0.7 percent in the September quarter, the first time since trading rebounded in March 2022.

The drop was mainly driven by a 1.2 percent fall in goods exports.

The ABS said high inventory levels in importing countries had reduced demand for Australian coal and liquefied natural gas, while uncertainty in international markets had weakened iron ore demand.

Meanwhile, imports of goods and services rose by 2.1 percent, led by a rise in the number of Australians travelling overseas for holidays and a surge in imports of industrial transport equipment.

Treasurer Is Optimistic About Australian Economy

Despite the Australian economy showing worrying signs of slowing down, Treasurer Jim Chalmers said the country was making “encouraging progress.”

“Inflation is moderating. Wages are rising. We’ve had two consecutive quarters of real wage growth. The gender pay gap is the smallest it’s ever been. Unemployment has a three in front of it,” he told reporters.

“We’ve got the first surplus in 15 years and much smaller deficits going forward. That means much less debt and tens of billions of dollars saved in interest costs as well.”

The treasurer also noted that the Australian economy was doing better than other advanced countries.

“Our economy grew faster than most of the major advanced economies through the year to the September quarter–faster than Germany, the UK, France, Canada, and Italy,” he said.

“We’ve had faster job growth since we were elected than any major advanced economy.”

Meanwhile, Shadow Treasurer Angus Taylor criticised Mr. Chalmers for ignoring the GDP per capita recession in his statement.

“Labor’s homegrown economic crisis now includes a GDP per capita recession,” Mr. Taylor said in a social media post.

“That means we have an economy only driven by immigration.”

A recent OECD’s economic outlook report has predicted that the Australian economy will continue to slow down next year, with GDP growth dropping to 1.4 percent by 2024 before rebounding to 2.1 percent by 2025.