The Australian Economy’s Second Year in Recession


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But we would like to say that if you see the world as this next reader does, stop reading and don’t bother emailing. It only makes us laugh with despair:

…the government, bureaucrats, statisticians and the like have completely dropped the ball in planning for the retirement of Boomers.

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But now, back to more ordinary reckonings.

Westpac’s consumer confidence index took the usual budget hit. It fell 6.8% to the lowest level in 2.5 years. The fall was about the same as when Labor’s previous budget came out.

Personally we put this effect down to the word ‘budget’ being all over the media. It makes people realise how over-indebted they are while living paycheque to paycheque in a house they can’t afford. As we explain in Saturday’s Escapologist, it’s your budget, not Treasurer Joe Hockey’s, you should be worried about.

But we’re still the lucky country, right? As a remarkable video on the Australian Financial Review’s website points out ‘GDP growth, unemployment rate and household wealth—these are all the numbers that look great.

But the video, which is the funniest thing we’ve seen since googling ‘cat runs into glass door on French cooking show’, wasn’t a happy one. Despite economists pointing at data to show how well off Australians are, ‘consumer confidence, a key indicator of how households feel, has languished around average or below average levels.

The video asks why there is such a discrepancy between the figures economists tout as proof of Australia’s economic prosperity, and how people on the ground actually feel. ‘How is it that economists believe Australia over the past two years has done well, yet Australians themselves feel they’ve gone backward? How can there be such a big gap between perception and reality?

For one, we’re not sure whether consumer confidence or economic statistics are the ‘reality’or ‘perception’. Secondly, consumer confidence is a forward looking indicator, and GDP a backward looking one. It’s an apples to oranges comparison.

But don’t let that ruin the video’s truly remarkable discussion. Why is there a discrepancy between how Australians feel and how economists are saying they should feel? Instead of an economic explanation, the journalist reckons it’s a measurement issue.

Enter Chief Economist of Deutsche Bank, Adam Boyton, who has come up with a ‘better’ way to measure economic prosperity than GDP. It’s a truly ground breaking and innovative indicator…at least the video makes it out to be. The indicator is ‘GDP and divided by the population’.

For those of you who didn’t choke on your pretzel as we did, you must be unaware that GDP per person, better known as GDP per capita, has existed as long as the concept of GDP itself. (That lie of a statistic was born out of the Great Depression.) In the same report which came up with the concept of GDP, and GDP per capita, the author warned of its use as a measure of welfare. That’s specifically the use the article is using it in reference to.

To be clear, we’re not accusing Adam Boyton of claiming to have reinvented the economic equivalent of the wheel. No doubt his research is just fine. But the way the AFR video is showcasing his use of GDP per capita as though it were some sort of new concept is nincompoopery of the highest order.

The video ends with the presenter smirking smugly and saying, ‘so maybe it’s the economists, not Australians, who need the reality check.

Errr no, it’s the journalists who need a reality check. And they got it in short order when the video was taken off the website just as we sent it round the office for a laugh. Hence we can’t link to it.

Lost in the list of mistakes and confusion of the video was the valuable insight it glossed over. Going by the consumer confidence figures, and GDP per capita, Australia’s economy is not holding up well at all..

We’re not sure whose job it is in Australia to ring the bell on a recession. The Australian Bureau of Statistics? The Treasury? After twenty something years without a recession, the statistician or committee who makes the decision is probably retired and the task long forgotten.

  So we’ve decided to take on the challenge. We’re going to call this spade a spade. Going by GDP per capita, instead of GDP, Australia is in recession! And we’ve been there for two years!

Ding! Ding!

Two years of negative economic growth per capita isn’t a surprise if you’ve kept an eye on the real world. But it’s still remarkable that without immigration and population growth, Australia would be doing worse than the United States of Quantitative Easing.

Aside from immigration, mining is keeping Australia out of the official recession zone too. But with iron ore plunging and our gas industry in trouble, that might not last.

Wait, our gas industry is in trouble? Yep, the China-Russia gas deal which was called off in yesterday’s news was finalised according to today’s Wall Street Journal. While politicians and diplomats around the world gloated over Russian President Putin’s failure to secure the deal, he told a press conference the deal was in fact done after all. ‘This will be the biggest construction project in the world for the next four years, without exaggeration’ he said.

The details such as price, quantity and terms are unknown. But chances are Gazprom undercut Australian natural gas producers by dozens of percentage points. The rumoured price for the Russian gas is right on the Aussie producer’s break even mark of $12 to $14.

Adding to the list of mining doom and gloom and recession warnings, mining wages are now growing slower than average wage growth elsewhere. And that growth is negative for the second quarter adjusted for inflation. The last time this happened was mid 2008.

Does anyone else want to have a go at ringing the recession bell?


Nick Hubble+
for The Daily Reckoning Australia

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Nick Hubble
Nick Hubble is a feature editor of The Daily Reckoning and editor of The Money for Life Letter. Having gained degrees in Finance, Economics and Law from the prestigious Bond University, Nick completed an internship at probably the most famous investment bank in the world, where he discovered what the financial world was really like. He then brought his youthful enthusiasm and energy to Port Phillip Publishing, where, instead of telling everyone about The Daily Reckoning, he started writing for it. To follow Nick's financial world view more closely you can you can subscribe to The Daily Reckoning for free here. If you’re already a Daily Reckoning subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Daily Reckoning emails.

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4 Comments on "The Australian Economy’s Second Year in Recession"

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Glenn Drew
2 years 5 months ago
Yep, its really hitting now. Our clients span all industries from retail to wholesale and all I can say is there is very little positive sentiment. Building and construction is slow, subsidiary industries of the miners are struggling, business confidence is waining and cash is getting harder to find by the day. On the local front, our friendship circles are getting hit with people being made redundant. There are other signs such as people knocking on the door looking for work in the outer suburbs. And even the ATO are fishing for $$$ and ramping up the pressure. In the… Read more »
slewie the pi-rat
slewie the pi-rat
2 years 5 months ago
slewienomics called the latest [and lasting/persistent] US recession a few months after Fukushima, before mid-2011. now, after record equity & debt prices, even the pundits for the puppets are starting to wonder: if we’re doing so well, why the hell do we still have ‘ZIRP’? as we head for ‘NIRP’? of course, it is to pay Vinnie the vig AND keep all those other checks in the mail, too. you won’t get this perception from the propaganda-spin and related tasty ‘Fudge’-sicles from the Margarita Markets marked-to-myth by accountants on crack sporting gov’t-approved rose-colored glasses under pale-green eye-shades. when ‘growth’ is… Read more »
2 years 5 months ago
Currently Australia is in stagflation. Recession is not far off. Some warning signs that recession has begun would be a continuous decline in immigration (although the pinko press will not report it or they’ll shove in the corner of page 16 of the tabloid). Unemployment will increase, the government will of course try to make the figure lower by making people wait to get the dole and not include unemployed people who are surviving on reduancy payments e.t.c, but eventually as the job market declines these people end up on the dole. So the Centrelink ques get bigger and the… Read more »
2 years 5 months ago

No, but I will ring the peak oil bell again.
Peak oil mates, peak oil.
There is a connection, despite what the eggonomic eggspurts say, between stagnating economies and consistently high oil prices.

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