Queensland Economic Advocacy Solutions

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A GDP per capita recession is nonsense

Talk of a 'GDP per capita recession' is complete nonsense – not because it is statistically not the case but because it has little to no context relevance.

When the national accounts were released this week Australia’s GDP per capita (that is GDP per head of population) in seasonally adjusted terms declined two quarters in a row.  Both the Federal Opposition and the media went somewhat into a frenzy stating we were in a ‘per capita recession’.

However, I have really struggled to get my head around why we have all of sudden started using this indicator outside of its benefit as a measure for the standard of living.  It is not an indicator for measuring whether we are in a recession.

You see economic growth as measured by GDP, is jointly determined by the three Ps — changes in population, its rate of participation of the working aged in economic activities (also referred to as 'labour utilisation'), and labour productivity.

Why we are all of sudden dismissing growth that arises from population growth is baffling. Population growth is a good thing as it buoys our economy through creating demand for goods and services.  This point is best illustrated in analysing Queensland’s economic growth for example.  The Sunshine State has relied on population growth over the past several decades for much of its prosperity.

Indeed, if we applied the same logic from the debate over the past week then Queensland’s economy might well have been in recession in 2009 through to 2011 and again in 2015.  This is quite possible but in technical terms it was not and I witnessed no one using a 'per capita' measure to claim it was.

In short ……. growth is growth regardless of why it is occurring.  

The point that should have been made though this past week, is that in analysing GDP quarterly growth for Australia, a downturn in economic growth is unmistakable (see below).  However, talk of a recession at present is quite simply utter nonsense and is only part of a narrative in the build-up to the forthcoming Federal Election.

Finally Queensland's domestic economy as measured by State Final Demand is also slowing in trend terms.  This will, without a shadow of a doubt, have implications for employment, our unemployment rate and wages growth in 2019.

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