Garry Shilson-Josling, AAP Economist
(Australian Associated Press)
The economy is in a rut.
Probably not quite as deep as suggested by the paltry 0.2 per cent June quarter growth revealed on Wednesday.
Nor is it as strong as the previous quarter’s 0.9 per cent surge in gross domestic product.
The truth is most likely somewhere in between, around the annual growth rate of 2.0 per cent, or around 0.5 per cent a quarter.
The 2014/15 year was the 24th consecutive year without a recession.
But to put its 2.0 per cent growth rate into perspective, the average for the first 23 of those recession-free 24 years was 3.3 per cent.
So the economy is currently growing at a little less than two thirds of its normal pace.
The big question, something touched on a couple of times recently by Reserve Bank officials, is why this slow pace has not led to a sharp slowdown in jobs growth.
Employment growth over the year to the June quarter, 1.8 per cent, was right in line with the average of the preceding 23 recession-free years.
That can be explained partly by a decline in the average number of hours worked per employee, partly by the economy’s growth now centred on more jobs-rich services sectors, and partly by the kind of labour productivity slowdown typically seen when the economy’s growth rate falls below its potential pace.
But none of these factors will hold back the tide forever.
Slow economic growth will eventually feed through into weaker employment growth.
It may already being doing that to some extent.
The bureau of statistics seems to be overstating the current pace of jobs growth, thanks to its assumption of steady population growth, despite clear signs that falling net immigration has reduced it.
In either case, a pickup in GDP growth is needed if the jobless rate, at 6.3 per cent in July – as high as it’s been since mid-2002 – is not to head even higher.
The bureau’s survey of capital spending last week warned that business investment won’t come to the rescue in the coming year or two.
Stimulatory government spending is off the table, stashed away in the locker marked “political poison”.
Although minerals exports will rise strongly, the resources sector is well past the phase of strong job-creation.
And housing construction appears to have stopped expanding and adding to overall economic growth.
That’s not to say all hope is lost.
The recent welcome fall in the Australian dollar, combined with ongoing low interest rates, will eventually flow through to faster economic growth, as consumers spend with local businesses rather than imported goodies or offshore travel destinations, and the non-mining business sector regains its confidence.
But that’s not happening in a hurry.
It looks like we’ll be in this rut for a while.