We could (but probably won't) go into recession tomorrow

Tuesday, 28 Feb 2017 17:12:27

The Australian economy shrank by 0.5 per cent in the September quarter. (File photo)

The Federal Government will be watching closely as the Australian Bureau of Statistics (ABS) releases its gross domestic product (GDP) figures tomorrow.

Last time around, they showed Australia's economy had gone backwards. If that happens for the second quarter in a row, we'll be in a technical recession.

What does GDP measure?

GDP measures all goods produced and services performed across the economy.

So it's counting the cost of the coffee you buy and adding the cost of paying the barista who made it.

It's quite the sum: the ABS is adding together company profits, wages, exports, imports, investment, construction. Basically, everything.

The ABS found that the Australian economy shrank by 0.5 per cent in the September quarter.

Why is recession a bad thing?

GDP is a measure of how an economy is performing.

So if it's decreased, you're looking at recession and everything that entails — including a probable rise in unemployment, decrease in spending and drop in living standards.

From a political point of view, Australia hasn't been in a recession since 1991, and not even the global financial crisis put us into one.

So you don't really want to be the Prime Minister when this streak finally gets broken.

What can we expect tomorrow?

The good news is that the Commonwealth Bank, Westpac and ANZ are all expecting the economy to have grown in the last quarter of 2016.

That's on the back of government infrastructure spending, household consumption and exports.

So we're out of the woods?

Well, no.

The expectation is that annual growth will remain around 1.9 per cent. According to Trading Economics, the average rate for Australia from 1960 until 2016 was 3.49 per cent.

So economic growth doesn't simply equal job well done. There's growth and then there's growth.

Do GDP figures tell the whole story?

Again, no.

They're a good health check for the economy, but they don't necessary tell you whether we're all getting richer or poorer.

For instance, a country's GDP might be growing, but if it's not keeping pace with population growth, the people themselves might not be any better off.

So a much better way of measuring living standards is "GDP per capita". According to Trading Economics, Australia was sitting at $US54,708 on that measure in 2015.

You've also got to look at unemployment and income distribution to get a proper sense of economic wellbeing across the population.

AustraliaPlus

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