Australia falls into per-capita recession as growth tumbles
Australia's economy has slumped into a per-capita recession for the first time since 2006, leaving the country relying on population growth to propel its economy and creating a political hurdle for the Coalition.
The Morrison government has pledged to reduce the migration rate but figures released on Wednesday show that without migrants fuelling consumption, Australia's economic growth would be going backwards.
The Australian Bureau of Statistics data shows the economy grew by 2.3 per cent over the year and 0.2 per cent in the December quarter - below market expectations and well short of Reserve Bank forecasts of 0.6 per cent.
The budget forecast of 3 per cent growth for 2018-19 and the mid-year economic update's revision to 2.75 per cent will struggle to be met, putting a strain on preparations less than a month out from Treasurer Josh Frydenberg's first budget.
Economic growth per person fell by 0.1 per cent in September and 0.2 per cent in December, the first time two consecutive quarters, the technical definition of a per capita recession, have recorded negative growth since 2006.
Prime Minister Scott Morrison has repeatedly claimed economic growth will be weaker under Labor, but the final two results of this term of government show the Coalition will finish its term presiding over a slowing economy.
The brakes were slammed on in the second half of the year, with the economy slowing from a 3.8 per cent annualised place to 0.9 per cent after June.
Mr Frydenberg said the figures showed the "economy is in fundamentally good shape" but the yearly figure "did represent some moderation on the back of strong results."
"The unemployment rate has fallen to 5 per cent, the lowest level in seven years and to a remarkable 3.9 per cent in our largest state, NSW, a level that hasn't been seen since the 1970s," he said. "More than 1.2 million new jobs have been created under this Coalition government."
"The fact that we are growing at a faster rate than any other G7 economy apart from the US is testament to that."
Mr Frydenberg said the drought, lower mining investment and a decline in residential construction activity were to blame for the lower than expected result.
ABS chief economist Bruce Hockman said growth in the economy was subdued, reflecting soft household spending and a decline in housing investment.
"The approvals for dwelling construction indicate that the decline in dwelling investment will continue," he said.
Government spending was the major driver, with public investment remaining at high levels particularly through large infrastructure projects funded by the NSW and Victorian governments. Record spending on aged care and the National Disability Insurance Scheme also continue to prop up an otherwise slowing economy.
Households in particular are reluctant to spend, with falling house prices affecting the amount consumers are willing to part with.
Household spending grew by 0.4 per cent, continuing the modest spending trend in recent quarters. Investment in dwellings fell 3.4 per cent.
Most of the spending that did occur was driven by rises in health, up 1.9 per cent, and clothing and footwear, up 2.2 per cent.
National Australia Bank economist Kaixin Owyong said the data makes the Reserve's forecast of 3 per cent growth over 2019 look increasingly unlikely, as growth would need to accelerate markedly from its current rate of 2.3 per cent.
"We believe the Bank will be increasingly uncomfortable with the 'growing tension between strong labour market data and softer GDP data' as the weakness in household spending appears to be more persistent than it forecast.
He said should the progress in the labour market falter over the next few months, the Reserve will likely be forced to cut rates to support households.
More to come